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VALIDATING INFORMAL CONTRACTS 


HEARINGS 



BEFORE THE 

COMMITTEE ON MILITARY AFFAIRS 

Coaa 4 re S S, 

UNITED STATES SENATE 

<* /» 

SIXTT-FIFTH CONGRESS 

THIRD SESSION 




ON 


H. R. 13274 


A BILL TO PROVIDE RELIEF WHERE FORMAL CONTRACTS 
HAVE NOT BEEN MADE IN THE MANNER 
REQUIRED BY LAW. 




WASHINGTON 

GOVERNMENT PRINTING OFFICE 
1919 


* 












COMMITTEE ON MILITARY AFFAIRS. 

GEORGE E. CHAMBERLAIN, of Oregon, Chairman. 


GILBERT M. HITCHCOCK, of Nebraska. 
DUNCAN U. FLETCHER, of Florida. 
HENRY L. MYERS, of Montana. 
CHARLES S. THOMAS, of Colorado. 
MORRIS SHEPPARD, of Texas. 

J. C. W. BECKHAM, of Kentucky. 
WILLIAM F. KIRBY, of Arkansas. 
JAMES A. REED, of Missouri. 
KENNETH D. McKELLAR, of Tennessee. 
HOKE SMITH, of Georgia. 


2 


FRANCIS E. WARREN, of Wyoming. 

.TOI-IN W. WEEKS, of Massachusetts. 

JAMES W. WADSWORTH, Jr., of New York. 
HOWARD SUTHERLAND, of West Virginia. 
HARRY S. NEW, of Indiana. 

JOSEPH S. FRELINGIIUYSEN, of New Jersey. 
HIRAM W. JOHNSON, of California. 
PHILANDER C. KNOX, of Pennsylvania. 


Caralyn B. Shelton, Cleric. 

S. W. McIntosh, Assistant Clerk. 


0. of 1). 

SEP 8 I9|9 


i 




> 

NN • 

a 


CONTENTS 


Page. 

Appleton, N. W., statement of_ 45 

Bernheimer, Charles L., statement of_ 28 

Colien, Julius Henry, statement of_ 6 

Defrees, Joseph H., statement of_11, 38, 46 

Dineen, Henry II., statement of_._ 19 

Dorr. G. H., assistant director of munitions, War Department, statement 

of_ 31 

Robbins, Edward D., statement of___ 48 

Symington, Charles T., statement of___ 26 

Thelen, Max, statement of_ 42 

lii't ' s 















VALIDATING INFORMAL CONTRACTS. 


SATURDAY, JANUARY 11, 1919. 

United States Senate, 
Committee on Military Affairs, 

Washington , D. C. 

The committee met, pursuant to adjournment, at 10.30 o’clock a. m. 
in the committee room, Capitol Building, Senator George E. Cham¬ 
berlain presiding. 

Present: Senators Chamberlain (chairman), Thomas, Johnson, 
Wadsworth, Weeks, New, Sutherland, Knox, Hitchcock, Freling- 
liuysen, and McKellar. 

The Chairman. Gentlemen of the committee, there are some gen¬ 
tlemen here that desire to be heard further in reference to the bill 
validating certain irregular contracts, and Judge Cohen is here. 

Senator Wadsivorth. I may say in advance of Judge Cohen’s 
observations that in conversation with him yesterday, and some 
other gentlemen from New York who have been vastly interested in 
this problem and admit its difficulty—I gather that the bill which 
the committee reported the other day is a substitute for the so-called 
Hitchcock bill which is already on the calendar—that rather in 
reporting that bill the committee used an informal and incomplete 
copy, and that there were one or two rather important features left 
uncovered in the copy which we used as a basis for our report, and 
that the committee of gentlemen who had joined with others in 
Washington in drawing up that bill discovered that the copy which 
we used was incomplete, and there are at least two important omis¬ 
sions, and I think that Judge Cohen intends to address the com¬ 
mittee upon the necessity or the desirability of including those 
eventually in any legislation which may be passed by the Congress. 
The parliamentary situation is somewhat difficult. 

The Chairman. Yes, it is. 

Senator Wadsworth. There is nothing now before the committee 
in the nature of a bill. We have already acted on reporting the 
substitute, and if the committee decides to do anything toward 
amending and perfecting^ this bill as now reported on the calendar 
or to be reported on the^calendar when the substitution is made, it 
would have to be, I told Mr. Cohen at that time, by amendment 
offered upon the floor. 

The Chairman. Yes. 

Senator Wadsworth. However, that is a matter which the com¬ 
mittee can take up after hearing Judge Cohen’s remarks and argu¬ 
ments. 


r> 



6 


VALIDATING INFORMAL CONTRACTS. 


The Chairman. Before he starts, may I ask the clerk to go in 
and get several copies of the proposed substitute. 

Senator Wadsworth. I think it was privately printed, was it not? 

The Chairman. It was printed later as a substitute. 

Senator Wadsworth. But I mean, as submitted to us, it was 
privately printed. But it was incomplete. 

STATEMENT OF MR. JULIUS HENRY COHEN. 

Mr. Cohen. I have the suggested amendments in mimeograph 
form. They will all be here in a few minutes. They will be mimeo¬ 
graphed, and at your pleasure I can explain the situation. 

The Chairman. Judge, will you give the stenographer your name 
and address? 

Mr. Cohen. Julius Henery Cohen, representing with Mr. Charles 
L. Bernheimer and Mr. Eugene H. Outerbridge, Mr. Bernheimer 
being present and Mr. Outerbridge detained in New York, the New 
York Chamber of Commerce. The New York Chamber of Com¬ 
merce is known to the members of the committee as the oldest trade 
body in the countiy. It recently celebrated its 150th anniversary. 
It is not a chamber that is interested in the promotion of any busi¬ 
ness enterprises, or real estate enterprises, and has no interest what¬ 
ever in any contracts of any kind, either by reason of having in¬ 
duced the Government to take any specific action, or by reason 
of the fact that it has any benefits to derive. About six or seven 
weeks ago the chamber of commerce, through Mr. Bernheimer, chair¬ 
man of the committee on arbitration, and myself approached the 
Comptroller of the Treasury with a view to supplementing the ex¬ 
isting machinery of the Government to facilitate the disposition of 
all claims that might be made and that would probably be the basis 
of parliamentary action on the part of Congress. We urged upon 
the comptroller the wisdom of his taking up the establishment of 
machinery, simple and expeditious, like the arbitration machinery 
that has been in existence in the chamber for many years, and that 
was being copied throughout the country by boards of trade and 
chambers. I mention that fact because of our entrance into this 
situation on the basis of procedural machinery. 

At. that time, the public, and I take it, Congress, were not aware 
of the unique situation that had developed, and the failure to com¬ 
ply with the provisions of the revised statutes. At that time we 
learned for the first time that there was likely to be legislation as 
to the outstanding orders and obligations which had not been made 
or reduced to writing in compliance with the terms of the statute. 

We immediately set to work to adapt our aim for the establish¬ 
ment of modern machinery for the disposition of claims against the 
Government, to adapt that machinery to the existing War Depart¬ 
ment situation. We had various conferences with War Department 
officials and we were advised that Senators Hitchcock, McKellar, 
and Frelinghuysen had been appointed a subcommittee by this com¬ 
mittee to meet the situation created through the invalidity- of the 
contracts. We had various conferences with Senators Hitchcock, 
McKellar and Frelinghuysen, and with Members of the House. We 
found the Dent bill, so called, wholly inadequate. We found that 


VALIDATING INFORMAL CONTRACTS. 


7 


it did not validate the contracts and it surely did not provide any 
machinery by which business men could get prompt relief. We 
found the subcommittee of this committee to be unalterably opposed 
to vesting the complete power in the War Department to handle the 
situation. And we adapted ourselves to that point of view. 

Senator Hitchcock was good enough, four weeks ago, to let me 
have the draft of the bill which he then was preparing for his sub¬ 
committee, and considered very carefully certain amendments which 
we suggested to him. One of those amendments was the amendment 
creating regional boards of examiners, which was our original con¬ 
ception of the method of disposing the vast mass of claims that will 
come to Congress on both valid and invalid contracts. And we hope 
that some day^ Mr. Chairman, your committee will be gracious 
enough to give us a hearing on Senator McKellar’s bill, which he 
introduced at our request, and which is the first suggestion of 
modern machinery for the disposition of all claims. We believe 
that we shall be able to convince you that it will relieve the Congress 
of a great deal of the legislation that will come up following this 
war if you immediately set up such machinery. But we succeeded 
in convincing Senators McKellar, Hitchcock and Frelinghuysen of 
the desirability of setting up such machinery in connection with 
these various cases and we found the point of contact between their 
feeling and ours on this line, that the Senators Hitchcock and Mc¬ 
Kellar did not wish to vest complete power in the War Department, 
and therefore we took the idea of the adjustment commission as 
worked out by Senator Hitchcock and supplemented it with the 
thought of the regional boards of examiners, and on the day that 
you were in session here, the hearing of Mr. Defrees and his col¬ 
leagues, we were working to secure amendments to Senator Hitch¬ 
cock’s bill which would further perfect his bill. 

Those amendments were printed by Senator McKellar and are avail¬ 
able now. We also had taken steps to endeavor to induce the gen¬ 
tlemen in the House to adopt similar machinery for the disposition 
of these claims. We did not know that it was contemplated to 
introduce another bill entirely. And, as you know, Mr. Chairman, 
the War Industries Board bill had not been introduced in the Sen¬ 
ate; it had not been printed, and no one had had advance notice 
that is was coming up before this committee. Our committee of 
the New York chamber, having participated thus far in the for¬ 
mulation of the Hitchcock bill, came into this hearing in the after¬ 
noon and we then, for the first time, learned of the plans to intro¬ 
duce the War Industries Board bill. We heard the discussion, did 
not participate in it, and received a copy of that bill. We imme¬ 
diately saw certain points in there that were subject to discussion 
and criticism, but we also saw this: We saw that you gentlemen 
were desirous of doing the fair thing with the business interests 
of the country; that you were also desirous of preventing any frauds 
being perpetrated upon the country; that you were desirous of 
avoiding by blanket the approval or ratification of any possible 
wrong doing that had been done, and we felt that you ought to 
have before you a united opinion from the business men of the 
country, not those interested directly in contracts, but those inter¬ 
ested in the preservation of the credit situation and the employment 


8 VALIDATING INFORMAL CONTRACTS. 

situation throughout the country. So, immediately after your ad¬ 
journment, at the invitation of Mr. Defrees, of the United States 
chamber, the three differing and diverging elements of opinion among 
the business men held a conference at the offices of the United States 
Chamber of Commerce, and we agreed upon various things, and 
it is my business to tell you what we agreed upon. 

The Chairman. That"is by way of amendment to which bill? 

Mr. Cohen. By way of amendment to the so-called War Indus¬ 
tries bill. We had endeavored, as I said before, to revise Senator 
Hitchcock’s bill in accordance with his main principle, but with cer¬ 
tain amendments which would safeguard, both the Government and 
the contractors. Those amendments we found were very much in 
accordance with the point of view of the gentlemen from the 
United States Chamber of Commerce and from other parts of the 
country, who were anxious over the situation. Our criticism of the 
War Industries Board bill first of all was this: That although it 
was your purpose, or the purpose of the majority of the Senate 
Military Affairs Committee to put the invalid contracts on the 
same level as the valid contracts, that was not accomplished by 
the bill, because the very first paragraph gives to the Secretary 
of War the determination of the life or death of that contract. 
On the second page, on lines 7 to 11, the waiver which is to be 
executed by the Secretary of War is to be given or withheld by 
him according as he finds that it is consistent with the public in¬ 
terest. 

The legal situation to-day with regard to contracts which are 
equitably sound, concerning which there can not be a vestige of fraud 
or collusion, is this: That on account of the provisions of the revised 
statutes, provisions which are wholesome and which should be pre¬ 
served, and on account of the great desire of officials in the War 
Department, and business men, to render the patriotic service that 
was exigent at the moment, cutting through red tape, even violating 
the Devised Statutes if necessary in order to win the war, on account 
of that, business men in good faith have obeyed what they regarded 
as commands from the War Department, and are in the position 
to-day of having no legal basis upon which to assert their claims, 
and no court to which they can go. The War Industries Board bill 
intended to put them on a fair basis, but it says that one of the 
parties to the contract shall have the sole determining voice as to 
whether or not those contracts shall be valid. I am not here to criti¬ 
cise the Secretary of War or the War Department. My feeling is one 
of respect, and in many cases admiration for what they have done; 
and we have stated to the War Department officials and to outsiders 
that we have absolute confidence in their desire to be fair. But on 
principle, and based upon human experience, I should say that there 
is not a lawyer in this room here who would advise his client to leave 
an invalid contract situation, the life or death of it to depend upon 
the equitable action of one of the parties to that contract. And that 
certainly was not the intention of this committee. 

When we brough that to the attention of the other gentlemen who 
were here, they recognized the force of that position, and said, 
“ What would you recommend ?” We took this posision: We said that 
there was merit in position of those who opposed to the general vest- 


VALIDATING INFORMAL CONTRACTS. 


9 


ing of power in the War Department. We did not know of any cases 
of fraud or of collusion. I believe that there has been very little of it. 
But, nevertheless, just as, on the basis of general justice and experi¬ 
ence, we felt that it was not right to leave it to the man who waSi 
the other party to the contract to validate or invalidate, so we felt that 
it was not right or fair that the entire situation should be closed or 
covered by a general validating provision. We said, “ You are right, 
you ought not by that kind of legislation to cover up anything that 
has been done that is wrong.” So we said to the gentlemen in the 
conference who had appeared before you that we thought this idea 
with regional boards was sound, but that instead of being the board 
or court of first instance it should be a body of review or appeal. 

The argument against it that was made was that delay would take 
place in the settlement of all these claims; that the War Department 
had machinery already established for the disposition of these claims, 
and that if that machinery were permitted to function this matter 
would be closed up much more expeditiously than if you created 
new machinery and a new commission with these regional boards 
functioning throughout the country, and with the problem decen¬ 
tralized and distributed throughout the country. We thought there 
was merit in that argument and that in the procedure the machinery 
of the War Department should function, but somewhere there should 
be a remedy both to the Government and to the contractor who was 
not satisfied with the result. Otherwise, on the side of the con¬ 
tractor, it would have put him in the queer position of either taking 
what the War Department offered him, or having no remedy, because 
without the waiver granted by the War Department he was pre¬ 
vented, could not get anything, had no contract; he had no standing 
in any court; and on the part of the Government you had the oppor¬ 
tunity for collusion without review. So, these gentlemen said then, 
“Will you draw an amendment which will meet that point?” So 
we took from the Hitchcock bill, in almost identical language the 
scheme of the adjustment commission, plus the scheme of the re¬ 
gional boards, and we added that as a section, and gave to either the 
War Department or the Department of Justice the right to appeal 
within 30 days from any settlement, and the right to the contractor 
to appeal for review within 30 days. 

That seemed to us to harmonize the legitimate objections that had 
been raised to all the legislation then pending in Congress, the ob¬ 
jection that it was not to fall on the side of the men who had con¬ 
tracts, the objection that it was not to fall on the side of those who 
were legitimately trying to protect the Government against any 
collusion or fraud. And we then said to the gentlemen, “If you 
will take that amendment which we think we can argue clearly with 
Senator Hitchcock and with the members of the House who have 
made criticisms, we will agree to substitute this amended bill in place 
of the Hitchcock bill.” And so we did agree and that revised bill 
is now in shape to present to you. We were obliged to leave for 
New York in the afternoon, so could not remain for the perfection 
of the details, and I am afraid that the details did not come to you 
in time for your deliberation. But we now urge upon you that this 
substitute, which meets all the criticisms and objections which have 
been made from various quarters, should be put in place of both the 
Hitchcock bill and the War Industries bill. 


10 


VALIDATING INFORMAL CONTRACTS. 


Senator Knox. Did you have an opportunity to present this bill 
to the House? 

Mr. Cohen. No, because the Dent bill was passed before we could 
get that bill to them. But we also found, too, Senator Knox, that 
the disposition in the House on the part of those who wanted to 
validate the contracts was to center upon the Dent bill so that some¬ 
thing could pass promptly, and they could get into conference with 
the Senate. And I think you will find when you go into conference 
that if you have a bill which you can stand for and argue for they 
will accept it in substitution for their own. 

The Chairman. The parliamentary situation in the Senate with 
respect to the Hitchcock bill and the proposed substitute is a diffi¬ 
cult one. The Dent bill, however, will come to the Senate Monday 
and will be referred to this committee. The parliamentary situation 
might be relieved if we had the Dent bill for the consideration of 
this committee. 

Mr. Cohen. You can always move to strike out everything after 
the enacting clause and substitute another bill which carries out the 
intent and purpose of the original bill. 

The Chairman. It is very hard to get at that, the way the matter 
stands in the Senate at this time. 

Mr. Cohen. I think you should work on the basis of the bill which 
you reported the other day, which is susceptible ,of improvement 
with a very few verbal changes and with the addition of the changes 
that we have already prepared. 

Senator Knox. Have you endeavored to persuade Senator Hitch¬ 
cock for the adjustment of this on the basis that vou have suggested? 

Mr. Cohen. We tried to see him yesterday, but he has gone to 
Omaha. But I think I understand his point of view. His point of 
view was that the War Department should not even have primary 
jurisdiction to settle these claims. But I think in the light of the 
discussion that has taken place we might persuade him that if the 
reviewing board was there the Government’s interests would be pro¬ 
tected, the contractor’s interests would be protected, and we would 
have the expedition which now everyone agrees will be had, because 
the machinery of the War Department will function undoubtedly in 
most of the cases, and will function better, if you please, if the parties 
know that there is a place to go for relief in case anything unrea¬ 
sonable takes place. So that we come before you to-day with this 
bill worked out. 

Now, however, difficult the parliamentary situation may be, the 
substantive situation is even more difficult, because it so happens that 
in the endeavor to do the right thing your committee has presented 
to the Senate a first draft, or printed draft, or so-called War Indus¬ 
tries bill without the various detailed changes that were made to 
cover situations quite imperative. For example, your bill does not 
cover the relations with the foreign governments involving a very 
large sum of money, and it does not cover the changes in language 
necessary to make the provisions consistent throughout. That un¬ 
doubtedly was due to inadvertence in the printing. But the situa¬ 
tion on that bill is that it is incomplete and imperfect and therefore 
it becomes necessary to substitute in place of it something that is 
perfected. 


VALIDATING INFORMAL CONTRACTS. 


11 


Have you got the copies, Mr. Defrees, the mimeographed copies? 

Mr. Defrees. Yes. 

Mr. Cohen. I would like to have them to distribute, if you can. 

Senator Johnson. Mr. Chairman, would you let the clerk tele¬ 
phone to Senator McKellar, because he was quite as interested as 
Senator Hitchcock in the bill and it might alter his view, if he were 
here. 

Senator New. If I might interrupt you, I think that the Senators 
ought to understand that this bill which Mr. Cohen is now suggesting 
should be substituted is the bill which you intended to report. In 
other words, it is the revised War Industries Board bill which we 
left with you, and confusion resulted because there had not been a 
printed portion, so that does not involve any change in the mental 
process, I am sure, that you went through, but there are added to it 
the sections providing for a system of appellate reveiew which Mr. 
Cohen spoke about. In other words, this revision of the War Indus¬ 
tries Board bill is not a new thing; it is exactly what we discussed 
before when we talked the other day. 

Senator Wadsworth. It is what you said he was to consider when 
you reported a substitute. 

Senator New. Yes; and it is what we did consider. 

The Chairman. I knew there was going to be confusion about 
those bills. You gentlemen had three or four here in different forms, 
and there was just that confusion, probably. Senators, we might 
have that substitute bill referred back to the committee. 

Senator Weeks. I don’t see why when the House bill comes over to 
the Senate they don’t refer it to this committee and then treat that 
as a basis for legislation, strike out the enacting clause and insert 
what we think is a suitable bill. 

The Chairman. I think that is the easiest way out of it. 

Mr. Defrees. I think that is the easiest and simplest way to pro¬ 
ceed, Senator. 

Senator New. What I would like to have you clearly understand 
is that the part which Mr. Cohen is now presenting, excepting the 
part providing for the board of review, is substantially the part that 
we asked you to consider the other day. 

Senator Knox. Do you entirely agree with Judge Cohen’s presenta¬ 
tion to the committee? 

Mr. Defrees. Yes; we do. 

Senator Knox. With the reasoning and the conclusions. 

Mr. Defrees. Yes. I see nothing in the reasoning. I am more im¬ 
pressed with the question of expedition. If this can be added I would 
regard it as a very great advantage to have, not only with respect to 
the Government, but with respect to the feeling of the country. 
There is a psychological basis, as it were, for the financial interests 
that are behind so many of these contracts. 

Senator Johnson. When you this could be added, you mean the 
additional clause providing for an appellate court? 

Mr. Defrees. Yes, sir. I think the percentage would be very 
small, but I think it is important to have it added, and I see no pos¬ 
sible reason why it should not be added. 

Senator Johnson. Is that not at variance with the position we all 
took the other day concerning delay and repetition, at variance with 
the action that was desired ? 


12 


VALIDATING INFORMAL CONTRACTS. 


Mr. Defrees. It can not affect that. 

Senator Knox. It only provided for cases where a man was thrown 
out of court altogether ? 

Mr. Defrees. Yes, sir. 

Senator Johnson. No ; I don’t understand it that way. 

Mr. Defrees. Yes. 

Mr. Coiien. May I answer that? 

Senator Johnson. Certainly. 

Mr. Cohen. Here is the situation at the present time-. 

Senator Johnson. Pardon me; is Senator Knox correct in that? 

Mr. Cohen. Yes. 

Senator Johnson. It only relates to the original action of the Sec¬ 
retary of War invalidating the contract? 

Mr. Cohen. Oh, no, it relates to any disposition which the War 
Department may make, and may involve an appeal by the Govern¬ 
ment as w T ell as an appeal by the contractor. But it also relates and 
primarily relates, because of its importance, to his action in either 
validating or invalidating the contract itself. 

Senator Johnson. Delates to the amount of the award? 

Mr. Cohen. Yes. 

Senator Knox. Then I am not correct ? 

Mr. Cohen. No. 

Senator Johnson. As I understand their plan—I had a very in¬ 
teresting conversation with the judge yesterday—it is to take the 
plan that we agreed upon the other day to safeguard the con¬ 
tractor and the right of appeal of the Government as well, and to 
create an appellate court. 

Senator Knox. And that appeal should apply not only to the valid¬ 
ity of his contract, but to the work under his contract ? 

Senator Johnson. That is my understanding. 

Senator Knox. If that is so, Senator Johnson, it would be subject 
to your suggestion that it contains some of the features of delay, but 
not nearly so many, because I think a great majority of these cases 
could be settled right there. 

Senator Wadsworth. The delay would arise from the voluntary 
act of the appellant. 

Senator Johnson. That is true, and I think that is a pretty com¬ 
plete answer. 

Mr. Cohen. That is the answer I was going to make. 

Senator Johnson. The only suggestion I make in regard to that 
is that it puts a premium upon disagreement. 

Mr. Cohen. I don’t think so. Mr. Bernheimer has been chairman 
of the committee on arbitration for how many years- 

Mr. Charles L. Bernheimer. I have been elected nine times. 

Mr. Cohen. And the reports which Mr. Bernheimer has made to 
the Chamber of Commerce of New York are to this effect : that 
wherever there is in the contract an agreement to arbitrate differ¬ 
ences it has been his experience that in 90 per cent of the cases he is 
able to conciliate the parties without going to formal arbitration. 
That is to say, the existence of a ready tribunal leads to the parties 
coming together. 

Senator Johnson. That might be so in the case of the intimate 
relationship that exists between you and the gentleman who has just 




VALIDATING INFORMAL CONTRACTS. 


13 


spoken and those who are members of the particular organization; 
but it would hardly be so where that intimate relationship does not 
exist, and where you are dealing at arm’s length, so to speak, in diffi¬ 
culties of this order. I am not speaking in opposition at all. 

Senator Frelinghuysen. I think that the practical suggestion of 
this, what the judge tried to accomplish, is this: I was on the subcom¬ 
mittee with Senator Hitchcock and Senator McKellar and was not in 
agreement with them as to their plan in the bill which they intro¬ 
duced, because I thought that the War Department had gone so far 
in the preliminary settlement of these contracts that not to use their 
efforts and their machinery would be foolish and expensive. I think 
the committee wants to accomplish this: after the Secretary of War 
has arrived at a figure in settlement of the contract, if the contractor 
feels that that award is not satisfactory, that he shall have a court 
of appeals between the Secretary of War and the Court of Claims. 
The process in the Court of Claims will be one naturally of delay 
and he wants to get quick action on an appeal. I don’t believe that 
there will be many of those cases, but where they involve the intrica¬ 
cies of a contract or future production, I think that it is absolutely 
necessary if we are going to do justice to the contractor. 

Senator Johnson. You may be entirely right. I won’t say that 
you are not, but I think that you are probably providing machinery 
here that is going to do the very thing that we are seeking to avoid. 
You provide first an elaborate machinery. You provide for the 
appointment of a commission, one selected from the War Depart¬ 
ment, one from the Department of Justice, and one from the busi¬ 
ness interests. These men are to have $10,000 a year salary. They 
are to sit, you know, as a regular court. And I think you have pro¬ 
vided—if you want it I have no objection; I want to get at this 
thing in the same spirit that you do, to have the thing determined 
with the least possible delay—but you are erecting now the very 
machinery that is going to do the very thing in my opinion that you 
are seeking to avoid. 

Senator Thomas. You will be bound hand and foot with red tape 
before the thing is two weeks old. 

Senator Johnson. Here is a man from the War Department with 
summary power for immediate settlement. He knows that the busi¬ 
ness interests of the country are on tiptoe. He knows that the govern¬ 
mental agencies here like ourselves are on tiptoe to have this thing 
settled and settled at once. He is much more likely to sav, when 
you have this elaborate commission, “Well, what is the difference? 
You have got a right of appeal. There is the decision. If you don’t 
like it, appeal it,” than he would be to be in a conciliatory attitude 
and make a settlement at once where there was no right of appeal. 
The restraint is on him of the exercise of an arbitrary power in one 
instance, and to say to the other fellow, as courts often say, “ Well, 
if you don’t like my decision you have the right of appeal.” 

Senator Frelinghuysen. How would you arrange for an appel¬ 
late court between the Secretary of War or the War Department 
and the Court of Claims? I have in mind one man who has a war 
contract of $5,000,000. Two-thirds of it is complete. Probably 
the loss of the profit on that contract or the settlement might involve 
him in disaster. The Secretary of War has arbitrary powers. He 


14 


VALIDATING INFORMAL CONTRACTS. 


simply says “You shall take that award.” He has the choice of 
taking that award or going to the Court of Claims, which might 
take several years. Is it not reasonable to assume that we should 
have between the Court of Claims, the slow process and the arbi¬ 
trary power of the Secretary of War, some authority, some tribunal, 
where he can go and get quick action ? 

Mr. Cohen. I know that case. The fact that the power of the 
War Department is final in that case is because it so happens that 
though that contract is signed, sealed, and delivered in every form 
it is invalid for lack of • compliance with the terms of the statute, 
so that of course the War Department is final in that instance. 

Senator Johnson. Well, you may be right. 

Mr. Cohen. So it happens every time. You will get quick justice, 
but you will get grave injustice occasionally. 

Senator Johnson. That is true. And there may be occasionally 
an injustice done by the system that we adopted the other day. But 
nevertheless the tremendous advantage that comes from immediate 
settlement will outweigh the disadvantages of the specific instances, 
few in number, where injustice may be done. 

Mr. Cohen. They are not few in number. My point is that if 
you would leave the situation in its present shape you encourage— 
you use the point of expedition—the desire for expedition will re¬ 
sult, coupled with the consciousness of final and complete authority on 
the part of the man in uniform—it will result in expedition, but 
it will result, I believe—and I submit for the record—in instance 
after instance of appeals to Members of the Senate and House for 
specific relief in individual cases, and in appeals to the Secretary 
of War to issue a waiver that he should issue. 

Senator Johnson. If that be so, it will result in instance after 
instance to this new commission that you are creating. 

Mr. Cohen. Well, it should. It is the best thing to do. Instead 
of burdening the Senators and Members of the House with con¬ 
sideration of the equities, you will have an appeal of that sort. Our 
position on the McKellar bill is that you should have a tribunal of 
that sort to which you should refer all claims. You have not got 
the machinery in this country for the disposition of controverted 
questions of fact. In England you have. Lord Bryce, at the meet¬ 
ing of the American Bar Association, pointed out that defect in our 
legal procedure, that where parliamentary relief was needed we do 
not have the legal machinery. And our main point for the Cham¬ 
ber of Commerce of New York is that sooner or later Congress must 
establish such machinery because of the exigencies that will arise 
out of the war. Now, with regard to delay, I don’t believe there will 
be delay in those cases where the parties have gotten together. In 
many instances the contractors and the zone officers have come to¬ 
gether and have got to the settlements now pending subject to your 
legislation. Certainly the contractors are not going to take appeals 
there. If they have arrived upon terms, they are glad to get their 
money and take it. 

The Chairman. Does your bill as you propose it now utilize the 
machinery which the War Department has established ? 

Mr. Cohen. Certainly, sir. 

The Chairman. All of it? 


VALIDATING INFORMAL CONTRACTS. 


15 


Mr. Cohen. Certainly. That is the substantial difference between 
our bill and the bill as it was in the final Hitchcock bill. Because 
in Senator Hitchcock’s bill you could not get anything until that 
commission had passed upon the claim, and all of those claims had 
to go through the filtration process of the adjustment commission 
before you could get a penny. Here you can take your settlement 
of the War Department if you are satisfied with it, and you have got 
knowledge on the part of the department officials that if they do 
not settle there is a court somewhere that you can go to and get 
what you are entitled to. But it does not seem to me that that is 
going to involve delay. It is going to expedite. And, Senator, again 
while I am on my feet, may I, in connection with your answer to 
Mr. Bernheimer, say that the Chamber of Commerce of New York 
has not been settling trade disputes between its own members, where 
the} T have the power of a body over its own members, but it has been 
settling disputes between foreign Governments and the business 
men in the city of New York and between business men who are not 
members of the chamber at all; and it finds the same principle 
applies, that if you can have quick examination of the facts the 
parties can get together very promptly. 

Senator Johnson. Are the members of the committee familiar 
with the provision relating to the new appellate court that is to be 
created ? 

Senator Thomas. No, I am not. 

Senator Johnson. I will read it. It is section 3. [Reading:] 

Sec. 3. That a commission is hereby created and established to be known 
as the war contracts appeals commission (hereinafter referred to as the com¬ 
mission), which shall be composed of three members, who shall be appointed 
by the President by and with the advice and consent of the Senate, and shall 
continue in office for one year from the date of this act. One member of the 
commission shall represent the War Department, one member shall represent 
the Department of Justice, and one member shall represent the business inter¬ 
ests of the country. None of the members of the commission shall be interested 
in any order, contract, or agreement within the purview of this act or have 
any interest in any firm or corporation having such orders, contracts, or 
agreements. Each member of the commission shall receive a salary of $10,000 
a year, payable in the same manner as the salaries of judges of the courts of 
the United States. The commission shall choose a chairman from its own 
membership, and may appoint a secretary, who shall receive a salary of not 
exceeding $5,000 a year, to be determined by the commission and payable in 
the same manner as the salaries of the members of the commission. 

What does the Supreme Court receive, by the way, Senator Knox? 

The Chairman. $13,000. 

Senator Knox. $13,000. 

Senator Johnson (continuing reading) : 

That there is-hereby appropriated for the purpose of defraying the reason¬ 
able expenses of the commission, including the payment of salaries herein 
authorized or of any money in the Treasury of the United States not otherwise 
appropriated, available immediately and until expended, the sum of $50,000. 
That within thirty days of the date when the Secretary of War tenders any 
contract or compensation as provided in this act, or refuses to tender such con¬ 
tract or compensation, the Department of Justice or the party to whom said 
contract or compensation is tendered may file with the chairman of the com¬ 
mission a notice of appeal. Thereupon, the commission shall proceed to 
examine and review the facts and circumstances of the case and make its 
award or finding thereon. Upon giving receipt in full of all demands against 
the United States arising out of the transaction by reason of which the award 
is made, the appellant shall be entitled to receive the amount of any award so 


16 


VALIDATING INFORMAL CONTRACTS. 


made, and the proper officer of the United States is hereby authorized and 
directed to pav the same, but if the appellant is dissatisfied with the amount 
so awarded he shall be paid seventy-five per centum of the amount awarded 
and shall be entitled to sue the United States in the Court of Claims to recover 
such further sum as added to said seventy-five per centum .shah make up such 
amount as will be fair and just compensation as provided in this act 

So that, you observe, you give not only the right of appeal, you 
create a new appellate court, but you give them a second right of 
appeal as well on the payment of 75 per cent—- 

and the Court of Claims is hereby given jurisdiction to hear said suit and 
render judgment therein. That in executing the duties and powers conferred 
by this act the commission may make its own rules and regulations and may 
hear and determine issues informally. It shall be the duty of the Secretary 
of War to furnish to the commission such evidence, documents, or papers per¬ 
taining to transactions as to which notice of appeal has been filed, as the com¬ 
mission may request. The commission is authorized to appoint one or more 
regional boards of examiners to serve in such districts as the commission may 
designate. Each of such boards shall be composed of a nominee of the War 
Department, a nominee of the Department of Justice, and a member from the 
business interests of the United States who shall, when such region is within 
the United States, be a resident of the region, none of whom shall, have any 
interest, directly or indirectly, in any contract or transaction coming before 
said board or receive any compensation save and except such a per diem com¬ 
pensation and expenses as shall be fixed by the commission. 

Senator Weeks. May I put in “not to exceed $10 per day”? 

Mr. Cohen. Yes, that was our original suggestion, and we simply 
took the salaries from the Hitchcock bill. 

But this point is true; that if a man has a valid contract to-day 
where no waiver is signed, he has the right to go to the Court of 
Claims, but under the bill as you have reported it he has no right to 
go to the Court of Claims, because he has not got the papers signed, 
and it is contrary, I believe, to the spirit of this committee to leave 
him with no relief anywhere. There is no process whereby you can 
mandamus the Secretary of War to execute the waiver. There is no 
possible proceeding in equity. You can not go before the Court of 
Claims because they have no jurisdiction to handle such cases. I 
want the committee to understand that so far as our point of view is 
concerned the details of the machinery are mere details, so far as we 
are concerned. It is the principle that we stand for. If the details 
of the machinery are in the opinion of the committee too elaborate, 
we took them from the Hitchcock bill, because we thought that would 
be most acceptable to the committee. If there are needed checks to 
prevent too cumbersome machinery, it should be revised; but we do 
not think it is too cumbersome; w r e think it is simple. We think it 
will dispose of the business very promptly. 

The Chairman. Let me ask you. I see by this last section you au¬ 
thorize the commission to appoint regional boards. 

Mr. Cohen. Yes. 

The Chairman. Will they not conflict with the functions the Sec¬ 
retary of War has already established? 

Mr. Cohen. No, because they only act in review after the matter 
has gone through the processes of the War Department, and they 
have this difference; that they are not in uniform; they are outside; 
and they are not subject to the rules and regulations of the War De¬ 
partment. They will perform the function of reviewing upon the 
reference of the commission in case of injustice. 


VALIDATING INFORMAL CONTRACTS. 


17 


The Chairman. When the commission feels it is necessary? 

Mr. Cohen. Exactly. They do not have to act. On the presenta¬ 
tion of the papers to the commission the commission cay say either 
that the War Department is right, or the Department of Justice is 
right, and that is an end to it, except the man can take his 75 per 
cent and go to the Court of Claims, and if the commission does not 
award him in the first instance the waiver which he should have got 
from the War Department, he has not even got any legal right to 
go to the Court of Claims. 

Senator Sutherland. Is the appeal, from the regional boards that 
the War Department has established to the regional boards that you 
establish by this bill? 

Mr. Cohen. In effect, yes, sir; but the process is: The regional 
boards do not take any argument or hear any testimony. The real 
board is the War Department Associate Board. That board is made 
up of splendid gentlemen; I know some of them personally. They 
are in uniform, subject to the orders of the War Department. I am 
sure they mean to act fairly. But the business community has not 
confidence that that kind of machinery will function always with 
equity and justice to the business men. 

Senator Sutherland. I think you are right about it, 

Mr. Cohen. That is our main point. And the business community 
of New York does not feel that a system of legislation, which vests 
in one of the parties to an obligation the power of life or death of 
that obligation is a fair system of procedure. 

Senator Sutherland. I think, though, it is likely to go both ways; 
that it may be too elaborate in some cases, and possibly not fair 
enough in others. 

Mr. Cohen. Right, Before you came into the room I said that 
our position was that there was merit in the proposition made to 
vest absolute and complete authority in the War Department, both 
in the objection of the contractor and in the objection of the Members 
of Congress who saw the danger covering it in principle. As I said, 
I did not believe that there was real danger, but it was based upon 
experience and principle, just as our objection was, so it seemed to 
us that there should be a board of review somewhere to which the 
Government could appeal if it was not satisfied. So we put in a 
provision that within 30 days the Department of Justice could take 
an appeal, and if any contractor has knowledge of any collusion he 
can bring it to the attention of the Government. It seemed to us 
that the business men of the country could not come before you and 
ask you for a proposition that was not fair to the Government as well 
as fair to themselves. And it seemed to us that it was indefensible 
to maintain a proposition that gave to the Government the final and 
conclusive say not only as to whether a man should have any money, 
but also as to whether or not he should have any lawsuit any¬ 
where, because without that Waiver all that the zone officers need do 
is to report to the Secretary of War that in the public interests the 
waiver should not be executed in this case, and he will refuse to 
grant it. 

I said to some of the Senators, “ Suppose it were an ordinary busi¬ 
ness transaction and you were the president of a great insurance com¬ 
pany and I had $1,400 or $1,500 worth of premiums on a policy. 

100268—19-2 



18 


VALIDATING INFORMAL CONTRACTS. 


Under section 1414 I find that the policy is not valid, as it is not 
signed by the president or vice president, and I have a little claim 
against you. Before I begin discussing it with your claims depart¬ 
ment, I walk over to you and I find that this policy has not got the 
signature of an officer of the company. I say, ‘Put your signature 
on there.’ Suppose he refuses until I adjusted my claim with the 
claim department; the claims department says, 4 This gentleman is 
entitled to $1,500,’ and the officer says 4 I want $100, and I won't sign 
this unless I get it.’ I say 4 Give me a chance. Sign your policy and 
then I will fight out the issue of my claim, on a valid policy, not on 
an invalid policy.’ 4 No, we won’t do that.’ What kind of a reputa¬ 
tion would that insurance company have in this business world, and 
how could they go on and do business ? ” 

Senator Sutherland. I understand the bill as passed by the House 
made a provision which would increase the entire amount to about 
$3,000,000,000. 

The Chairman. That House bill is not satisfactory to the business 
element nor to the Government itself. 

Senator Sutherland. Is it not true that they included contracts 
made with foreign governments which would increase it to, as I 
recall, $2,700,000,000, and with that amount of money involved it 
seems to me you have got to have sufficient check somewhere to safe¬ 
guard the expenditure of that sum of money? 

Senator Knox. The consideration which has considerable weight 
with me is this: That the necessity for celerity here, prompt action, 
so far as the financial world is concerned, is pressed upon us by busi¬ 
ness men, and the objection that this plan they propose may involve 
delay coming from them—if they are willing to take the risks on the 
amount of delay that might be occasioned under this system, I don’t 
see why we should complain. 

Mr. Cohen. We don’t believe there will be any delay. May I beg 
here to put Senator McKellar in touch with the situation? I said, 
Senator, in your absence, that I had conferred with you and Senator 
Hitchcock while you were engaged in the process of developing the 
other bill, and that we recognize the merit of the criticism of the 
plan of placing absolute and complete authority in the War Depart¬ 
ment. 

The other day when that War Industries Board bill came in we 
were not heard, and when the bill came out we found that that prin¬ 
ciple on your side as well as on ours had not been put in the bill they 
had, so we suggested to these other business men in a conference that 
in fairness to the Government as well as to the contractors, there 
should be a ready tribunal somewhere to review the action of the 
W ar Department both to prevent fraud and collusion and also to 
prevent arbitrary action on the part of the War Department; not 
that we believed there was any collusion, or that we believed there 
was any arbitrary action, but because human experience taught us 
that such things would take place whenever arbitrary power was 
vested, and because the men who had lent money on the basis of 
these contracts would feel more secure if they knew it was not left to 
the final determination of a man in uniform as to whether there w r as 
life or death in the contract. 

Senator McKellar. I think you are entirely right, Mr. Cohen. 


VALIDATING INFORMAL CONTRACTS. 


19 


The Chairman. Suppose we take up the bill now and consider it 
in this connection. The Dent bill will be referred to us on Monday. 
It has already passed the House. Let us take this up in connection 
with the proposition of offering this bill or some other as a substitute 
for the Dent bill. 

Senator Weeks. Before you do that I would like to ask Mr. Cohen 
one question. May the committee assume that you and Mr. Defrees 
represent all business interests in the country as far as you know ? 

Mr. Cohen. That is a very broad assumption, Senator. 

Senator Weeks. So far as you know ? 

Mr. Cohen. Mr. Defrees represents the war congress of executives 
who have been dealing with war contracts and is an officer of the 
United States Chamber of Commerce and represents all of the mer¬ 
chants and boards of trade throughout the country. We can only 
speak for the Chamber of Commerce of New York, whose voice has 
been heard with respect on previous occasions. The other gentlemen 
who come here from Cleveland represent practically and substan¬ 
tially all of the large contractors who have Government contracts, and 
they have been in conference with their lawyers both here and in 
New York, and I think we have come to a unanimous conclusion as to 
what is the desirable and fair thing. I do not say that we represent 
all the business interests of the country; that would be arrogant on 
our part, but I think we express the vocal point of view because we 
are the only ones who have followed the question with this degree of 
detail. We have been here now on occasion, as Senator McKellar 
knows, rather persistent in the presentation of our point of view 
before you in the War Industries bill, and I think it can be said that 
in New York City at least, where there has been consideration of this 
matter, we express the point of view of that city. 

And Mr. Defrees can tell you to what extent he represents the 
commercial view of the country. Mr. Dineen, as counsel for the 
contractors’ association, can tell you to what extent he represents 
that. You may judge, then, for yourself, how far we represent 
unanimous opinion. 

The Chairman. Mr. Dineen, will you be heard ? 

Mr. Dineen. If you please. 

STATEMENT OF ME. HENRY H. DINEEN. 

The Chairman. Your address, and your representative capacity, if 
you please. 

Mr. Dineen. Maryland Trust Building, Baltimore. I am the 
temporary secretary" of the Association of Manufacturers of War 
Materials, which was organized about 10 days ago, and for some 
13 months I have been the secretary of three voluntary associations 
of manufacturers who were engaged in making the component parts 
of all the artillery ammunition for the Government—that is, the 
shells, the fuses, and the booster and the adaptor—and as such I was 
thrown into intimate contact, I may say, with the heads of the vari¬ 
ous sections of the Ordnance Department, and my office was a clear¬ 
ing house for all the statistical data, the information and things of 
that kind between the manufacturers of those parts and the Ord¬ 
nance Department. 


20 


VALIDATING INFORMAL CONTRACTS. 


And I will say for the information of the committee that during 
the past 13 months at the request of the Ordnance Department there 
have been over 100 meetings held in various sections of the country 
at which all of the various manufacturing interests engaged in the 
manufacture of that part or those parts sat around the table just 
as we do here with 15 or 20 representatives of the Ordnance Depart¬ 
ment, 50, 60, or 70 representatives of manufacturing interests, such as 
the Wellington Pump, the American Can, the S. A. W. Woods, the 
Symington interests, and similar industries, Butler & Haywood, and 
so forth. What I want to say is this: That these informal contracts 
were born of situations like this: We would be sitting in a room; 
one of them would be called to the telephone and the Ordnance De¬ 
partment would give him an order over the phone—this was in the 
critical days of last May of June—and he would say, “Men, for 
God’s sake, give us ammunition. I have just received a Govern¬ 
ment contract. Give us ammunition. Pershing is cabling for it. 
Don’t stop to wait for anything, but turn it out.” And they would 
call the roll and each man would be asked to tell what he could do 
regardless of his contracts. And they went ahead. When this situa¬ 
tion broke and we were met with the rule that equitable contracts 
were not legal contracts, the manufacturers of the country were in 
this position; in Cleveland alone 50,000 laborers will probably go 
out on the 1st of January. 

Mr. Sutherland. What do you mean go out; go out of employ¬ 
ment or on strike? 

Mr. Dineen. No; go out of employment. I will explain in a 
moment. In Detroit alone 20,000 went out on Monday for this 
reason: Take the Packard Motor Works; the Government has their 
money tied up* They have those Liberty motors in process of manu¬ 
facture. They have factory on factory of wings and other things, 
and they can not get any place to send them. They can not get other 
war work, because the Government says “ We won’t recognize our 
business obligations.” Capital is tied up there and we don’t want 
your war work profits. They can not get into peace work because 
their capital and their surplus is all out. Their energies and their 
capital are tied up in this way and, therefore, being unable to get out 
of war they can not get into peace, and they can offer labor nothing. 
In Cleveland, Detroit, Cincinnati, St. Louis, Toronto, Boston, and 
New York, they look at it from another point of view. I say this as 
a member of the Baltimore Liberty loan committee who nearly yelled 
my head off selling bonds on the fourth loan: That when we had the 
Germans driven back from Chauteau Thierry, we had the devil’s own 
time selling $5,000,000,000 worth of bonds, and now the Senate is 
going to ask the country next April to subscribe an equal amount. 
Labor has no job. Then we are going to build on that. 

Senator Thomas. I don’t think this impresses upon us the im-’ 
portance of this matter. 

Mr. Dineen. Our point is, and we represent practically all the’ 
manufacturing interests in Government material, that we want two 
things; we want these contracts validated and we want speedy relief. 

Senator Johnson. We are all agreed on that. 

Senator Weeks. If we adopt this machinery which has been out¬ 
lined, Mr. Cohen, will the business men of the country have any rea¬ 
son to complain if there is delay as a result of its adoption? 


VALIDATING INFORMAL CONTRACTS. 21 

Mr. Dineen. No; they will not, because I think there will be delay 
only in probably 2 per cent of the cases. 

Senator Weeks. And you are satisfied that those with whom you 
are associated would be in favor of the adoption of that kind of 
machinery ? 

Mr. Dineen. Yes; for this reason, that these local regional boards 
now functioning as the machinery of the Government are familiar 
with the atmosphere that exists in each locality, and they can get 
around the board together, and as business men they can settle this 
thing. The automatic validation of contracts will unloosen the 
rnonev and they will be in the position to pass quickly from war to 
peace, and for that reason we are in accord with any legislation which 
will give us relief. 

The Chairman. You avoid the question that Senator Weeks put 
to you. You say that you are satisfied with any legislation that will 
give you speedy relief. But suppose the last clause of this bill re¬ 
sults in some delay; are you still satisfied with this form of bill? 

Mr. Dineen. Yes, we are satisfied with this, because once the pulse 
of the public- 

Senator Thomas. We don’t care anything about the reasons. If 
you are satisfied, we are. 

Senator Weeks. I think what we want is to have these other gen¬ 
tlemen say. that they are satisfied with what we have recommended 
here, particularly with the standpoint of the possible delay that may 
result. 

Mr. Cohen. I think we have hardly any doubt about that. We 
are all satisfied. 

Mr. Defrees. Mr. Dineen represents, as I understand, practically 
all the Ordnance war contractors in the country, and many others, 
and subcontractors as well. The war service executive committee, 
of which I am chairman, represents practically 90 per cent of the 
industrial interests of the country, and therefore 90 per cent in that 
sense of the labor of the country which is involved in this situation. 
We all agreed upon this paper as put to you. But please keep this 
exact paper, because there have been other things suggested. 

The Chairman. You are measurably to blame for that. 

Mr. Defrees. Certainly. I am taking the blame, and I am trying 
to see that we shall not have occasion to have more blame put 
upon us. 

Senator McKellar. I call your attention to section 3 of the sub¬ 
stitute amendment that was reported out yesterday, I believe, by the 
committee as a substitute for the bill formerly reported out. Have 
you any objection to that going in? I will just let you read it. 

Mr. Cohen. That is the affidavit? 

Senator McKellar. The affidavit provision. It is in the law now, 
that there are some contracts that the Government ought to be 
guarded against. No contract that is honest need worry. And there 
are dishonest contracts that will be looked after on a quantum 
meruit. 

Mr. Defrees. We thought of that in the preparation of this. First 
I will say that if it is the desire of the committee that that be added, 
we would like to suggest a small amendment to it. 

Senator McKellar. What amendment? 



22 


VALIDATING INFORMAL CONTRACTS., 


Mr. Defeees. Just a minute. We thought that the Government’s- 
right of appeal involved in Mr. Cohen’s additional section probably 
conferred the relief that you wanted. 

Senator McKellar. That is the law now, substantially. 

Mr. Defrees. The difficulty is twofold; in the first place a very 
great many of these contract officers are no longer in the service 
of the Government, and therefore it would be very difficult and in¬ 
volve more or less delay, we thought, to get their oath as required. 

Senator McKellar. You might have to get their oath before you 
get the contract. In other words, are you going to validate a con¬ 
tract—take it this way: Suppose the officer is away and the Govern¬ 
ment has no means of knowing whether that officer ever gave a 
contract to a contractor; do you mean to say we are to validate a 
contract on the mere statement of the contractor that he did have 
a contract with the Government? 

Mr. Defrees. Absolutely not. 

Senator McKellar. It is absolutely necessary to have something 
like this. 

Mr. Defrees. It would not lie in our mouths very gracefully to 
debate against any protection against fraud on the Government. 

Senator McKellar. It struck me that after Senator Knox 
amended it the Senator very wisely, as it seemed to me, put a pro¬ 
vision in there that I think just takes away any possible danger 
of wrong to any contractor and at the same time protects the Gov¬ 
ernment. In other words, we must know from some officer of the 
Government—and the best one is the one who made the contract 
himself—that this contract existed. 

Mr. Defrees. We do not object to that being added. 

Mr. Cohen. May I make a suggestion that has just occurred to 
me, that I think Senator McKellar would accept? If that were 
referred to the Commission instead of to Congress, you would save 
yourselves a large amount of valuable time. 

Senator McKellar. I am perfectly willing to let it go to the com¬ 
mission. You understand it was put in here because Ave had no 
commission. We made a try for the commission and did not get 
it, and then Ave had to put Congress in. 

Mr. Cohen. That meets the entire situation. 

Senator McKellar. If it Avill suit Senator Knox it will suit me. 
We will just add the words “ to the commission aforesaid,” instead 
of “ to the Congress.” 

Mr. Cohen. In line 12, page 4, of Senator Chamberlain’s substi¬ 
tute, substitute in place of the words “ to Congress ” the Avords “ the 
war contracts appeals commission aforesaid.” 

Mr. Defrees. We are going to be in danger, because that refers 
to this. 

Senator McKellar. I am going to offer it as an amendment. 

Mr. Defrees. If Ave will have a chance to see to it that we get the 
exact thing we are talking about. 

Mr. Cohen. We will work that out before we leave. Those of us 
who have been on the task realize that you gentlemen have so manv 
important and pressing problems that the details of procedure anil 
protection of rights ought really to be considered by the lawyers who 
have given thought to the matter. 


VALIDATING INFORMAL CONTRACTS. 


23 


Senator Thomas. That is it. It is your specific business to con¬ 
sider the form of the bill, and we have so much business—I have a 
multitude of details. I have not been able to attend to my mail for 
four days. 

The Chairman. There is another thing. We struck out of this 
bill when the substitute was proposed that provision which had 
reference to lands, but I see it is in the bill which has been sub¬ 
mitted by Mr. Cohen. T think you will notice on the second page 
of his mimeographed bill this: 

And whenever, prior to said November twelfth, nineteen hundred and 
eighteen, any individual, firm, company, or corporation has made any agree¬ 
ment, verbal or written, with, or has received any order, oral or written, from 
the Secretary of M ar, or any office, agent, or agency as aforesaid, for any of the 
purposes aforesaid, and the same has hot been reduced to contract form, hut 
such individual, firm, company, or corporation has in good faith made expen¬ 
ditures, incurred obligations, furnished equipment, materials, or supplies, or 
rendered services, in reliance on such agreement or order, in every such case 
the Secretary of War is authorized and directed, on behalf of the Government, 
to enter into such contract with such individual, firm, company, or corporation 
as will, under all circumstances, fairly and equitably compensate him or it 
for the expenditures made, obligations incurred, equipment, materials, or sup¬ 
plies furnished, or services rendered, as aforesaid: Provided, That in no event 
shall such contract provide for prices more favorable than the prices for which 
the aforesaid agreement or order may have provided. 

And whenever, prior to said November twelfth, nineteen hundred and 
eighteen, the War Department, through its officers or agents has taken pos¬ 
session of any land, then the Secretary of War, if he finds that the public in¬ 
terest does not require the* possession or occupancy of such land by the Gov¬ 
ernment is authorized to make compensation to tlie owner or holder thereof, 
for the fair value of the use of such land while in the possession of the War 
Department, and for any expense or loss incurred by the owner or holder by 
reason of such possession. 

Doesn't that provision authorize the Secretary of War in his 
discretion to pay for the land? 

Senator McKellar. I think it does, and I don t think it ought to 
be done. 

• Senator Thomas. I have an amendment that I prepared of the 
whole thing. I will go and get it now. I reserved the right to in¬ 
troduce it on the floor. 

Senator Sutherland. I think we want to be careful not to give 
them power to close up, for instance, those deals down there without 

an express sanction. • 

Senator Wadsworth. This bears directly on that Columbus (Ga.) 

proposition. . . 

The Chairman. That is why I am calling the commissions at¬ 
tention to it. .... 

Senator Johnson. Have you gentlemen any interest m this par¬ 
ticular paper? * , 

Mr. Cohen. Not any at all; but, as I listened to the discussion yes¬ 
terday while waiting, on the Georgia situation, it seemed to me that 
this representated the general attitude of the committee toward 

such situations. .. 

Senator Johnson. I was going to suggest that if you are not con¬ 
cerned with this particular matter the Georgia situation has not been 
concluded as yet, I imagine, and no decision has been reached 

about it. 

Mr. Cohen. We won t press for that. 


24 


VALIDATING INFORMAL CONTRACTS. 


Mr. Defress. I think you ought to understand that what we pre¬ 
sented here is the revised War Industries Board bill with the Cohen 
sections added for a board of review, and that that was in there, and 
we did not strike it out because we saw no objection to it ourselves. 

Senator Johnson. Concerning the third section, I want to say that 
it was with great reluctance that we created this new court, as far 
as I am personally concerned. And I intended to present this to 
those in the War Department who are more thoroughly familiar with 
the situation, and I intended to obtain for myself their opinion on 
the particular provision. 

Mr. Cohen. That is, the provision with regard to the lands? 

Senator Johnson. No, the provision with regard to the creation of 
an appellate court. 

Mr. Paul Bogart. Secretary Crowell said the other day that this 
war industries bill would be acceptable to the War Department. It 
did not have the appeals commission added. 

Senator Thomas. I have prepared this—it is rather crude, I imag¬ 
ine, because I prepared it hurriedly, this proposed substitute for sec¬ 
tion 2, after it had been amended. 

The Chairman. For the wdiole section? 

Senator Thomas. Yes; it is practically a reproduction of the sec¬ 
tion, so far as concerns everything except my proposed amendment. I 
just wrote out the whole thing, using that as a basis. 

The Chairman. That is the third paragraph of section 1? 

Senator Thomas. Yes; it is the section preceding section 2. 

And whenever prior to said November twelfth, nineteen hundred and eight¬ 
een, the War Department through its officers or agents has taken possession of 
any land, or whenever the holder or owner of any land has removed from or re¬ 
moved any improvements from such land at the order or request of the War 
Department, its officers or agents to turn over the same to the War Department 
and no valid contract has been made with respect thereto, then the Secretary of 
War, if he finds that the public interest does not require the possession or occu¬ 
pancy of such land by the Government, is authorized to make compensation tq 
the owner or holder thereof for the fair value of such improvements so removed, 
and the expenses incurred by such owner in removing therefrom or for the fair 
value of the use of such land of which' the War Department has taken actual 
possession and for any expense or loss incurred by the owner or holder by 
reason of such possession. 

Senator McKellar. Should not the same right of appeal be ap¬ 
plied to that? 

Mr. Defrees. It is. 

Senator McKellar. Your bill will cover that? 

Mr. Cohen. Covers all these cases. 

Senator Wadsworth. While we are in open session, I wanted to 
ask: There was a brief explanation from the gentleman before us 
as to the necessity for the creation under this bill of reginal boards. 
In view of the fact that the War Department already "has regional 
boards, are they essential to the proper working of your appellate 
system ? 

Mr. Cohen. I should say that if this required and made im¬ 
perative the creation of regional boards there might be serious ques¬ 
tion about it; but it merely authorizes the commission to create 
regional boards, and they do not need to create any until they 
see whether the business is of sufficient quantity. Anil as we pro¬ 
posed these boards would serve with practically no compensation 


VALIDATING INFORMAL CONTRACTS. 


25 


so there is no pecuniary motive to create them. We had in mind the 
■creation of tribunals along the lino of arbitration tribunals through¬ 
out the country. But if, as now seems to be the point of view, there 
will not be many cases, then the regional boards need not bo created 
any oftcner than examiners arc appointed by any commission. 

Senator Wadsworth. It is your idea that these regional boards, 
created in the discretion of the contracts appeal commission, would 
be used by that commission to obtain information independent of the 
information already obtained by the War Department's regional 
boards ? 

Mr. Cohen. Yes. That is to say, at the present time the con¬ 
tractor has not a chance to make a record. He has not a chance 
to argue his case out before an impartial tribunal. 

Sentor Wadsworth. Under your bill could he not argue it out 
and make a record before the contract appeals commission ? 

Mr. Cohen. Yes, and if this commission had only five cases there 
would be no reason for creating a regional board; but if they had 
500 cases and it gets clogged up they can create these regional 
boards. "They are not obliged to create them. That argument we 
went through with Senators McKellar and Hitchcock on their bill. 
Senator McKellar argued with some force that under their bill as 
it had been drawn the regional commission would have power to 
appoint examiners, but we wanted that authority vested clearly, 
and so we succeeded in getting that into their bill. 

Senator Sutherland. There is no limit to the number of regional 
commissions thev can create under this bill ? 

Mr. C ohen. Sio; there would be no limit except the business they 
would have and their appropriation. They have no appropriation 
except $50,000. 

Senator Johnson. These regional boards are investigating boards? 

Mr. Cohen. Yes. \ . 

Senator Johnson. Are not courts of appeal ? 

Mr. Cohen. The court of appeal is the war contracts appeals com¬ 
mission. The regional boards are merely fact-gathering agencies for 
the purpose of reporting the facts with their recommendations, 
exactlv in the same fashion as the auxiliary capital issues committees 
throughout the country serve the Capital Issues Commission in Y\ ash¬ 


ing! on 


Senator Johnson. That is an anomalous situation, I submit to the 
committee. We have your regional beard of the W ar Department, 
that'is to determine this matter, investigate the facts, and to gather 
them together and the like. You authorize now another regional 
board to do exactly the same thing. 

Senator McKellar. In such case as the commission may see fit. 

Senator Knox. The regional board that is now in existence, as I 
understand, gathers facts and reports to the War Department for 
the original decision. 1 here people perform the same function xor 
the commission of appeals. 

Senator Sutherland. Independent of the War Department? 

Senator Wadsworth. In general, what is the character of the per¬ 
sonnel of the present War Department regional boards? 

Senator Thomas. That was stated here. by the Secretary of Mar. 

Senator McKellar. All one? All officers? 


26 


VALIDATING INFORMAL CONTRACTS. 


Senator Wadsworth. All military officers. 

Senator McKellar. All military officers. 

Mr. Charles L. Symington. I am president of the Symington 
Machinery Corporation, of Rochester, N. Y. The present boards are 
almost entirely headed by men who have had very broad business ex¬ 
perience, not necessarily in any way interested in these contracts. 
The head of our board in Rochester is Mr. Nobel, the vice president 
of the Eastman Kodak Co., and associated with him are several gen¬ 
tlemen who are not in uniform. That board is almost entirely a 
civilian board. In Chicago, Mr. John J. Mitchell, president of the 
Illinois Trust & Savings Bank; Mr. Russell, formerly vice president 
of the Otis Elevator Co.; and throughout the country the boards are 
constituted—they are made up, rather—of men who have had prac¬ 
tical experience with the contract from a production standpoint, and 
the board is headed by some man in the community who has a repu¬ 
tation as a financier or business man, and whose interests are not 
selfish in any degree. The reason the association of manufac¬ 
turers, which was organized in Cleveland for the purpose of getting 
some light on this question and showing you gentlemen what the 
manufacturers directly want to do—the reason that committee is 
in favor of the War Department machinery is because that ma¬ 
chinery now is functioning to the entire satisfaction of the manu¬ 
facturers. Ninety-five, I might even say 98 per cent, I have not the 
exact figures, and I do not want to exaggerate, but a very large per¬ 
centage of the contracts to-day could be cleaned up within two 
weeks after this bill or some proper remedial legislation is enacted. 
Why ? Because the money has been- 

Mr. Cohen. You were merely asked to tell the character of these 
regional boards, and I don’t think you are answering the Senator’s 
question. He asked you how they are made up. 

Senator McKellar. Are not all these regional boards directly 
under the direction of the War Department, the military authorities? 

Mr. Symington. Yes. 

Senator Wadsworth. Thev are appointed bv the Secretarv of 
War? ' 

Mr. Symington. Yes. 

Senator Wadsworth. And they consist in part, at least, of civilians ? 

Mr. Symington. Yes. 

Senator Wadsworth. And they are headed very generally by 
civilians? 

Mr. Symington. Entirely. Every district claims board—there 
are 34 of them; I do not know exactly. 

Mr. Cohen. Thirty-four. 

Mr. Symington. They are all headed by civilians who are not 
in uniform. 

Senator Wadsworth. Then the preponderating influence is a civil¬ 
ian influence ? 

Mr. Symington. Yes, sir. 

Senator Wadsworth. Then the Secretary of War, or whoever ap¬ 
pointed them, must have made up its mind that the Government 
could rely on their information. Then why can not the contract 
appeals commission rely on their information also? 



VALIDATING INFORMAL CONTRACTS. 


27 


Mr. Symington. From the manufacturers’ standpoint, I entirely 
agree with you; but Mr. Cohen seems to think I agree with Senator 
McKellar and Senator Hitchcock that these regional boards would 
be advisable to have. We have no objection to them. 

Senator Wadsworth. Because you are not concerned particularly 
about them. 

Mr. Symington. We are not concerned. 

Senator Wadsworth. But as a matter of public policy I wonder 
whether we are not duplicating effort ? 

Mr. Cohen. I think, Senator, if I may be permitted to answer 
that question, it is our point of view that we have this feeling; that 
the men who are acting on these regional boards are working under 
definite rules and regulations promulgated.bv the War Department. 
They report to a contract adjustment commission made up of men 
in uniform who are subject to the orders of the War Department 
and can be removed at any minute and transferred by the War De¬ 
partment; that they follow the policies of the War Department; that 
it is true that in many instances, because they are familiar with the 
facts* they will be able to do justice speedily. But the business com¬ 
munity feels that there should be a place to go to in case any of 
these gentlemen, following the rules of the War Department, mis¬ 
understanding them, perhaps, either refuse to give the waiver that is 
essential to the validity of the contract, or refuse to give an award 
that is fair. 

Senator Weeks. Well, Judge, you have a place to go to in the court 
of appeals. 

Mr. Cohen. Under our bill. 

Senator Knox. But the judge's idea is that the court of appeals 
ought to have the machinery to get at the facts themselves. 

Mr. Cohen. Exactly. 

Senator Knox. It is exactly analogous to a master in chancery. 

Mr. Cohen. Right. 

Senator Knox. The court of appeals may appoint an additional 
master to get at the facts, to satisfy themselves. 

Mr. Cohen. There is absolutely no necessity for this additional 
board to go over the same ground that has been gone over by the 
regional board in the War Department. They take that record as a 
beginning. But the contractor says the failure of this board is that 
this and that fact was not brought to their attention. He desires 
now to put in evidence on that. And all that is done is that in¬ 
stead of a one-sided inquiry—I say in principle—I do not say in 
intent—you have the opportunity for a two-sided inquiry, for a com¬ 
mission that is responsible to nobody—except its own honor and 
conscience. 

Senator Knox. And the business man who suffers from the de- 
lav is the man to invoke that? 

Mr. Cohen. Exactly. And my additional point is that the exist¬ 
ence of power to create these regional boards will result in a much 
fairer consideration of the cases in the first instance, as always is 
the case with a trial board or court that knows there is a possibility 
of review. But at the present time no records are made except the 
records of the report of the war officer. 


28 


VALIDATING INFORMAL CONTRACTS. 


Senator Thomas. These commissions will tend to increase the ex¬ 
pense of administration very considerably. 

Mr. Cohen. Bnt the limit of expense is in the bill. 

Senator McKellar. Why talk of $50,000 expense when there are 
$3,000,000,000 of contracts? 

Senator Thomas. I am not talking about it at all. I simply say 
we will have to make provision for it. 

Senator McKellar. That will depend upon the recommendation 
of the commission after they get started, because under this bill they 
have a right to appoint or not as they see fit. 

Senator Thomas. I am not objecting to it particularly. I think 
you are going to duplicate your work. 

Senator Wadsworth. I perhaps laid too much emphasis upon it. 
I do not regard it as vitally important one way or the other, but I 
am not a lawyer; I don’t know. 

Senator Knox. If this is what the business men want, I am per¬ 
fectly willing to let them have it. 

Senator Thomas. So am I. 

Mr. Defrees. Some of us have larger views than others, but we all 
want to do what is right. 

The Chairman. There is one thing we have not disposed of, and 
that is that real property section. I think we ought to modify that 
a little. I think that gives the War Department power, where it 
has taken possession of any land or improvements on it, the dis¬ 
cretion to buy it- 

Senator Thomas. You mean that amendment of mine? 

Senator Weeks. These gentlemen are not interested in that par¬ 
ticular matter, and I was going to suggest that the committee go 
into executive session now, if that meets your approval. 

Mr. Cohen. We will sit outside and be prepared to help you. 

Mr. Defrees. I would like very much to be sure that we get every¬ 
thing to you. 

The Chairman. We want to end it some way. 

Mr. Defrees. If we can take those copies we can put the amend¬ 
ment into each one to make it exactly what we want it to mean to 
you. 

The Chairman. You can do it if you want to. 

Mr. Bernheimer wants to make a statement. 

STATEMENT OF MR. CHARLES L. BERNHEIMER. 

Mr. Bernheimer. I am chairman of the arbitration committee of 
the Chamber of Commerce of New York. These regional boards, 
Mr. Chairman and gentlemen, are fact-determining agencies that 
are as flexible as we take it to be is our financial system of the coun¬ 
try. That isj they contract or expand as the necessity requires it. 
The expense connected with them is a nominal one. The view that 
the New York Chamber of Commerce took on this subject was that 
if they get a dollar a day, the members thereof, they would be per¬ 
fectly satisfied. You can say a cent a day. So the amount involved 
has no bearing whatever on it. But they are the fangs thrown out 
by the commission to help them get in all facts, to gather in the 
facts, to make only recommendations, and stop there. They are 



VALIDATING INFORMAL CONTRACTS. 29 

simply a method for the purpose of helping them get down to the 
facts. The element is the facts. 

There is this other element: They are able, independently, to 
reach the small—not ridiculing him—manufacturer, or commercial 
man who has had Avar contracts, who has not enjoyed close contact 
with the men of these Army boards, who is in a position, however, 
to have his remedy if it is necessary. He can get it more readily 
through this commission and this fact-determining agency inde¬ 
pendently than otherwise. In other words, though the New York 
Chamber of Commerce is very often looked upon as a body of very 
big business people, still in this case we are looking out for the 
little man, for the little man who is not able to help himself. And 
on further consideration in executive session, I am convinced that 
you will see my viewpoint as to that. 

(Thereupon, at 12.15 o’clock p. m., the committee went into execu¬ 
tive session and later adjourned until Tuesday, January 14, 1919, at 
10.30 o'clock.) 



VALIDATING INFORMAL CONTRACTS. 


TUESDAY, JANUARY 14, 1919. 

United States Senate, 
Committee on Military Affairs, 

Washington , D. C. 

r llie committee met pursuant to adjournment at 10.30 o’clock a m., 
at the committee room, Capitol, Senator George E. Chamberlain 
presiding. 

Present: Senators Chamberlain (chairman), Fletcher, Thomas, 
Beckham, Kirby, McKellar, Warren, Weeks, Sutherland, New, and 
Knox. 

The Chairman. Gentlemen of the committee, we had up for con¬ 
sideration before the committee the other day this matter of con¬ 
tracts—those improperly executed, or the irregular contracts, and 
we agreed upon a measure to submit as a substitute for the Dent bill 
the one which came here from the House. 

Since that action was taken I understand that gentlemen on both 
sides of the controversy, some of the contractors, or some gentlemen 
representing the contractors, and the War Department, desire to 
make statements about the matter regarding some defect in the bill 
that we have practically agreed upon. The committee will be glad 
to hear from the representatives of Mr. Crowell. 

STATEMENT OF MR. G. H. DORR, ASSISTANT DIRECTOR OF MUNI¬ 
TIONS, WAR DEPARTMENT. 

Senator New. Will you please state whom you represent ? 

Mr. Dorr. I represent Mr. Crowell, Assistant Secretary of War. 
I am the Assistant Director of Munitions, and he asked me to state 
his position. Mr. Crowell regretted very much that he could not be 
here personally, but he will leave what lie is doing if the committee 
desire. However, I have familiarized myself with his views respect¬ 
ing the matter. 

The bill as reported out by this committee is satisfactory to the 
War Department, as stated by Mr. Crowell when he was here last; 
that is, the bill that is now on the floor of the Senate, as I understand 
it. Since that time he was informed that certain suggested amend¬ 
ments in that bill have been made. 

The position of the War Department on these suggested amend¬ 
ments has been set forth in response to a request for the views of our 
department by Senator Johnson, of California, in a letter which I 
would like to put before the committee. I think that letter states 
those views as concisely and as clearly as they can be stated. 

Senator Johnson, ifou refer to the letter- 

Mr. Dorr. Of January 13, 1919, of Mr. Thelen. 

(31) 





32 


VALIDATING INFORMAL CONTRACTS. 


The Chairman. You may read it to the committee. 

Mr. Dorr. It is as follows: 

January 13. 1919. 

Hon. Hiram W. Johnson, 

United States Senate. 

My Dear Senator: In response to your request for my views on the amend¬ 
ment proposed last Saturday morning to S. 52G1, the war-contracts bill, I beg 
to advise as follows: 

1. Special privileges to favored contractors (sec. 3) : The amendment pro¬ 
vides that the contractors therein specified, being those who do not hav6 valid 
formal contracts, shall have the right to appeal first to a war contracts appeals 
commission to be created by the bill and then to the Court of Claims. They will 
thus be given “ two bites at the cherry ” and the second bite with 75 per cent of' 
the award in their hands. 

No other contractor with the War Department has such a privilege. Contrac¬ 
tors having valid contracts with the War Department can appeal only once 
from the War Department, i. e., to the Court of Claims and with no part of their 
compensation in their hands. No contractor with the Navy Department has two 
appeals nor do contractors with other departments of the Government have the 
right to try first one tribunal and then another in an effort to secure compensa¬ 
tion higher than that which the department has found to be just and reasonable. 

The effect of this amendment would be to grant special privileges to the con¬ 
tractors now asking relief from Congress, without any good reason for such 
favoritism. 

To get as much of the working capital now tied up in these war contracts back 
sinto industry as speedily as practicable, the department has planned to make 
payments on account just as rapidly as individual items, such as labor cost and 
settlements with subcontractors, could be determined and in advance of the de¬ 
termination of those items that may demand more elaborate accounting and 
appraisal. 

The amendment provides that as to the final settlement with each contractor 
the Department of Justice may, within 30 days after the War Department has 
tendered a contract or compensation, file notice of appeal with the chairman of 
the Appeals Commission. In view of the possibility of such appeal by the De¬ 
partment of Justice, no disbursing officer could with safety make any partial 
or final payment until the expiration of the 30-day period and no such payments 
would be made. In other words, the effect of this provision would he to defer 
for at least 30 days all payments to the contractors— 

And I should say, making impossible partial payments on account— 

The responsibility seems to be imposed on the Department of Justice of 
examining each claim to determine whether the adjustment is satisfactory to the 
Government. The magnitude of this task need not be dwelt upon. If the 
Department of Justice files notice of appeal whenever it has been unable to 
make sufficient investigation to satisfy itself that the interests of the Govern¬ 
ment have been fully protected, there will be further substantial delays in 
payment. In all such cases, even though the action of the War Department 
were finally fully sustained, the contractor could receive no payment whatever 
until the decision of the appeals commission had been rendered. Even though 
the contract tendered by the War Department provided for immediate payment 
of part or all the amount agreed upon, no payment could be made in whole or 
in part if the Department of Justice filed its notice of appeal. 

These delays in payment are drawn to your attention for the reason that the 
War Department feels strongly the necessity of having payments made as 
promptly as is consistent with a satisfactory scrutiny of the claims, so that the 
moneys now locked up may be made available to reestablish industry and con¬ 
tinue the employment of labor. 

While the contractor may be able to secure an extension of credit on the 
basis of the award, and so avoid bankruptcy, his working capital even then 
remains locked up and can not be put at the service of the industry and labor 
of the country until after the whole proceeding is terminated. 

2. Regional boards of examiners (sec. 3) : The provisions for regional boards 
of examiners are apparently a more recent development of the original plan 
to have questions of fact arising out of war contracts decided by such regional 
boards consisting entirely of business men of the vicinity. 


VALIDATING INFORMAL CONTRACTS. 


33 


I refer to this matter now merely to draw attention to the facts heretofore 
made known to you, that the War Department now has at work 24 local claims 
boards in various sections of the country and 8 central claims boards in Wash¬ 
ington; that these boards consist of representatives of the War Department 
and of business interests; that their members are well qualified to ascertain 
and report the facts; and that an additional system of regional boards is 
entirely unnecessary. 

3. Affidavits (sec. 4) : It is assumed that section 4, referring to the making 
of affidavits, refers to those classes of cases in which the officer named in the 
contract as contracting officer did not personally sign the same and did not take 
the oath of disinterestedness. 

None of these officers are now engaged in settling these contracts. They are 
scattered over the United States, Europe, and perhaps Asia, and some are 
probably dead. In order to obviate the long delay in getting in touch with all 
these officers and to enable prompt payment to be made where proper, it is 
suggested that this section be amended so as to provide, in effect, that if the 
affidavits can not be secured with reasonable promptness from these officers 
there may be accepted in lieu thereof, in such instances in which it can be made, 
an affidavit of the contractor or an officer thereof (if a corporation) stating 
that the contracting officer of the Government was not directly or indirectly 
interested in the contract. If for any reason this suggestion is not satisfactory, 
it is hoped that some other solution may be worked out which will avoid the 
very long delays which would he inevitable under the section as now worded. 

The following suggestions for action are respectfully submitted for your 
consideration: 

(1) That section 3 of the proposed amendment referring to the Appeals Com¬ 
mission be eliminated. 

(2) That if the committee is of the opinion that the contractors affected 
should have an appeal from the decision of the War Department, section 1 of 
the bill be amended so as to provide that jurisdiction is conferred on the Court 
of Claims to give equitable relief in all cases covered by the section. 

(3) That section 4 be amended so as to provide some method of speedy action 
if the contracting officer can not be reached with reasonable promptness. 

Mr. Benedict Crowell, the Assistant Secretary of War, has read this letter 
and authorizes me to say that it represents his views and the views of the War 
Department. 

The opportunity to express these views is much appreciated. The undersigned 
will be very glad to supply to you or other members of the committee any in¬ 
formation or assistance in his power. 

Very sincerely, 


Max Thelen, 

Surveyor of Contracts and Assistant to the Director 

of Purchase, Storage, and Traffic. 


Senator Johnson of California. Mr. Chairman, permit me one 
word of explanation. On Saturday last when we were debating this 
matter, and when the representatives of the New York Chamber of 
Commerce had presented to us a scheme which was an amendment, 
or an elaboration of the bill reported by the Senate, I asked the ques¬ 
tion whether or not the War Department had been consulted and 
what the views of the War Department were? It developed that the 
department had not been consulted concerning the amendment, nor 
had it expressed any view, and so while we were in session I wrote a 
very brief note to Mr. Thelen, who had been in charge of that part of 
the matter at least, asking him to let me know what the department’s 
views were as to the particular amendment presented by the New 
York Chamber of Commerce, and the clerk of the committee very 
kindly sent it down to the department for me. This letter was a re¬ 
sponse and came yesterday. 

Mr. Dorr. With respect to the suggestion that these holders of in¬ 
formal contracts should be placed in the same position as are other 
claimants against the Government, if the committee feels, as I gather 


100268—19-3 



34 


VALIDATING INFORMAL CONTRACTS. 


it does, that the holders of informal contracts and claimants under 
them should have the same recourse to some other tribunal than the 
War Department, it occurs to the department that the appropriate 
thing to do, and that which will involve the varying of the course 
which has heretofore been pursued by it—is to put them in the same 
position by a very simple amendment giving the Court of Claims juris¬ 
diction to entertain a petition for equitable relief on those claims. 
That would put them in precisely the same situation as is every other 
person who has a claim against the Government. 

The question has been raised, and was very carefully considered by 
the War Industries Board at the time this bill was being drawn— 
of course, the War Industries Board has been continually in touch 
with the industries that were affected by War Department con¬ 
tracts—and I am informed they considered the question whether 
the Court of Claims was in a position to handle claims of this char¬ 
acter if such jurisdiction were given, and their investigation, as 
I understand it, and the investigation of the Attorney General in¬ 
dicated that the Court of Claims was in a position to handle the 
claims as presented. Of course, if it should prove that.the claims 
growing out of this subject matter, and claims growing out of other 
subject matter, overburden the Court of Claims, why appropriate 
general relief can be given. The department, of course, gentle¬ 
men— 

Senator New. That could be given by further legislation ? 

Mr. Dorr. Yes, sir. 

Senator New. But it would require further legislation? 

Mr. Dorr. My suggestion is merely this, that so far as at present 
appears the Court of Claims is able to handle these things as well 
as other claims that are before it. I understand that the War De¬ 
partment has satisfied itself as to that, and has also satisfied itself 
that there was no objection as far as the protection of industry, or 
affording any special relief in this particular class of contracts, are 
concerned. If the Court of Claims has not the facilities for handling 
the claims which are being presented by citizens, there would seem 
to be no particular reason for singling out a particular group of 
claimants against the Government and conferring a special privilege 
on them of what constitutes two appeals. 

Senator Kirby. And claimants who have no basis at all for com¬ 
pensation except through the favor of the Government in validating 
their contracts? 

Mr. Dorr. Yes; I think that is what led us to omit that provision 
as to the Court of Claims. 

Senator Johnson of California. And the position you took, as I 
take it, is that a man with an invalid contract, who is accorded the 
favor of validation by this law, is granted greater rights by this 
law than the man who has a valid contract, and only a valid contract 
to commence with; is that correct ? 

Mr. Dorr. Precisely; that is unquestionably the attitude. 

Senator Johnson of California. Se the man who has an absolutely 
valid contract, and who has been an original creditor in the first in¬ 
stance, is penalized because he has a valid contract ? 

Mr. Dorr. Precisely. 

Senator Johnson of California. And the man who has an invalid 
contract is given two rights of appeal, with the right of compensa- 


VALIDATING INFORMAL CONTRACTS. 


35 


tion, which are not accorded to a man with a valid contract; is that 
correct ? 

Mr. Dorr. Precisely; and not accorded any other of the vast range 
of claimants against the Government. 

Senator Johnson of California. I have no doubt it will be done, 
but it will not be done with one vote. 

Senator F letcher. That was not the case under the Dent bill, the 
substitute for the Hitchcock bill. 

Mr. Dorr. As the bill is now on the floor of the Senate, that is not 
the situation. 

Senator Kirby. What bill do you refer to on the floor of the Sen¬ 
ate—the House bill? 

Mr. Dorr. The one which I understand this committee reported 
out. 

Senator Kirby. We reported two bills out. You have reference to 
the last bill—the war-industries bill as amended? 

Mr. Dorr. Yes, sir; which was reported out. 

Senator Fletcher. The substitute for the Hitchcock bill. 

Senator Beckham. And that is the substitute to which you sug¬ 
gest amendments, is it? 

Mr. Dorr. No, sir; we are not suggesting amendments to that. 

Senator Beckham. The substitute meets the objections that you 
have to that? 

Mr. Dorr. Tes, sir; the objections which I am suggesting are to 
the proposed amendment to the bill as reported out by this com¬ 
mittee. 

Senator New. The amendments that you are suggesting here are 
to the bill which was substituted by this committee on Saturday 
afternoon ? 

Mr. Dorr. Yes, sir. 

Senator New. And for all bills which had preceded it? 

Mr. Dorr. Yes, sir; that states it correctly. 

In response to a suggestion, as I understand it from Senator Cham¬ 
berlain, Mr. Defrees yesterday took this matter up and suggested 
that the inequality might be somewhat cured by extending the scope 
of this appeals commission to a still further class and that is, to the 
holder of the War Department’s valid contracts. Frankly, that does 
not seem to us to be the right way to approach the situation. That 
is the mere enlargement of the favored class, because it leaves all 
other claimants against the Government, the vast range of them, dis¬ 
criminated against, and, frankly, it is difficult for us to see why a 
claimant against the War Department should have rights which 
claimants against the Navy Department have not, or claimants 
against the Treasury Department or the Interior Department or any 
other department have not. The machinery which has been set up, 
if I may say so to the committee, we believe to have been as care¬ 
fully designed as in the nature of things it could be to give the con¬ 
tractor a fair hearing on this matter, both as to valid and invalid 
contracts. 

The Chairman. May I ask you this: Is the War Department sat¬ 
isfied with the bill that we were going to substitute for the Dent 
bill, which we considered last Saturday; is the War Department 
satisfied with all of that bill down to section 3? 

Mr. Dorr. Yes, sir. 


36 


VALIDATING INFORMAL CONTRACTS. 


The Chairman. Then you object to the commission that has been 
created for appeals; you object to the form of affidavit which has 
been added to the final section? 

Mr. Dorr. We think that the provision with respect to the affi¬ 
davit might be clarified. We do not object to the affidavits being 
given. 

The Chairman. In other words, the War Department prefers that 
the whole machinery for the adjustment of these claims, valid and 
irregular contracts, shall be vested entirely in the War Department 
and those agencies as now created. 

Mr. Dorr. We suggest that if the committee sees fit, the same pro¬ 
vision as to the jurisdiction of the Court of Claims could be extended 
to these informal contracts as already exists as to valid contracts, 
and that otherwise the contractor of the War Department would be 
in the same position that the contractors with the Navy Department 
are in, or with the Interior Department, or any other department. 

The Chairman. When Judge Defrees and Mr. Thelen came up 
to see me the other day I suggested that they get in touch with each 
other and undertake to formulate that appeals section—section 3— 
in such a way as would meet the wishes of both the War Department 
and the contractors, but even you two gentlemen seem to be unable 
to agree. Now, you have got this committee of 19 to undertake to 
agree, and if you can not agree, it is pretty difficult for this commit¬ 
tee to get together and know just exactly what is to be done. 

Mr. Dorr. Mr. Chairman, as to that I may say that the difficulty 
is that it does not seem to us that any provision for appeal is neces¬ 
sary, because those who deal with the War Department should be 
put in the same position as any other claimant. 

The Chairman. There is quite a general feeling, I think, in Con¬ 
gress amongst those whom I have discussed the subject with that the 
War Department, having made all of these contracts through its 
agencies, or having failed to make contracts at all, ought not to be 
the sole arbiter in the matter of validating and passing upon con¬ 
tracts which they have improperly made, but that there ought to be 
some tribunal aside from them to consider those cases. 

Mr. Dorr. May I say this in reply to that, Mr. Chairman: The 
problem that arises under these contracts is not any new problem in 
the history of the Government. It is precisely the same situation 
that we have had ever since this Government began. 

An executive department enters into a contract with a private in¬ 
dividual. Subsequently the executive department seeks a modifica¬ 
tion, we will say, of that contract or seeks to make an adjustment, 
particularly with regard to supplies which it desires to have fur¬ 
nished, or a particular harbor which it seeks to have dredged, or 
what not. The particular shape in which it desires to have the bill 
becomes unnecessary when it desires to modify that contract, because 
under the law and practice from time immemorial it has been the 
custom of the executive departments, when the contract is not going 
to be carried out as originally planned, for it to suggest or offer a 
basis of settlement to the contractor, and the contractor either ac¬ 
cepts that basis of settlement or, if he does not regard it as acceptable, 
he proceeds to the Court of Claims. 


VALIDATING INFORMAL CONTRACTS. 


37 


Now, that is precisely the situation that we have throughout all 
the departments of the Government to-day. The Navy Department 
is adjusting contracts; the Shipping Board will undoubtedly have 
things to adjust respecting contracts, and it is no new probleih and 
it is not particularly confined to the War Department. The prin¬ 
ciple which has hitherto prevailed in the whole history of the Govern¬ 
ment is that the executive departments are charged with the duty 
of effecting that adjustment. 

Senator McKellar. Do you know that in 1898, after the Spanish- 
American War, there was a commission created to adjust these 
kinds of contracts in the War Department? 

Mr. Dorr. Informal contracts. 

Senator McKellar. All contracts. 

Mr. Dorr. I understood that there had been some such institution. 

Senator McKellar. Then you see that that would not bear out 
your statement. 

Mr. Dorr. I understood it was very limited. 

Senator McKellar. It was limited just exactly as this is limited, 
the same kind of commission. 

Senator Kirby. I think the department's objections are well taken 
to this bill. A man who has an informal contract with the depart¬ 
ment, who had authority to make a contract, ought not to be put in a 
better position by the law than if he had made a valid contract, and 
we have trusted the machinery of the Government to settle and ad¬ 
just all contracts that have not been performed that were valid, and 
we ought to trust it to adjust those that were not valid at all. I 
understood from Judge Defrees the other day that the War De¬ 
partment was in harmony with this contract that you offered here 
on the part of the War Industries Board, am I mistaken about that? 

Mr. Dorr. Yes; I will say- 

Senator Kirby. I asked the question, and I understood it in that 
way. I probably ought to say that. 

Mr. Defrees. The day you speak of we were considering the War 
Industries Board bill, and I stated—and Mr. Crowell was here and 
can verify my statement—that it was satisfactory to the War De¬ 
partment* and I understand it still is. The matters under discus¬ 
sion are the sections added to that. 

Senator Kirby. By the committee. 

Mr. Defrees. Which broadens it, creating this commission. That 
is what the objection is, to the appeals commission. 

The Chairman. In other words, the contracts were satisfactory 
under the War Industries Board bill without the appeals clause 
added ? 

Mr. Defrees. Some of them would. I could explain it if I had 
the opportunity. 

The Chairman. Then we will let you be heard now, Mr. Defrees, 
if Mr. Dorr will suspend. 

Senator Kirby. Have you finished, Mr. Dorr? 

The Chairman. We will suspend with Mr. Dorr for a minute 
until we hear Judge Defrees’s statement. 


38 VALIDATING INFORMAL CONTRACTS. 

ADDITIONAL STATEMENT OF MR. JOSEPH H. DEFREES, OF 
CHICAGO, CHAIRMAN OF THE EXECUTIVE COMMITTEE, WAR 
SERVICE COMMITTEES. 

Mr. Defrees. Mr. Chairman, when we were here several days ago— 
and when I say “ we ” I mean the executive committee of which I 
am chairman—was here urging the War Industries Board bill, we 
presented that and urged that as a proper bill to effect the proper 
relief; that was our view. We had not been impressed at that time 
with the necessity of the appeals situation. Sitting in the audience, 
intending to be presented and to be heard upon the question, was 
Mr. Cohen, representing the New York Chamber of Commerce. 
Some of the Senators called attention to that. Immediately after 
the hearing Mr. Cohen and Mr. Symington and Mr. Green, repre¬ 
senting the contracts association, and Mr. Cohen, representing the 
New York Chamber of Commerce, and ourselves, talked here in the 
hall and agreed to have an immediate conference to see whether or 
not we were in all accord. Judge Cohen was earnestly in favor of * 
the Hitchcock bill as it then was, because it did permit this civilian 
board of appeals. After discussion, we agreed that we would all 
join Judge Cohen; we agreed that we would all join in supporting 
the War Industries Board bill, if the rest would join in having the 
commission constituted—an appeals commission—instead of the 
commission as it was in the Hitchcock bill. ' 

We were opposed to the Hitchcock bill, because we felt that the 
War Department could dispose of the elements of its contracts with¬ 
out difficulty and immediately, and we disliked very much to bring 
in a new element. So we made that compromise. I at once drafted 
a bill in which I stated the situation and the reasons for it, and gave 
these added sections, which you considered Saturday, to every 
Senator who is a member of this committee. I gave it to messenger 
and sent it down here. Unfortunately, it was at the time of the 
Roosevelt funeral and it did not come to your attention until after 
you had acted upon our previous arguments. 

Judge Cohen came to you and secured his hearing, adding this 
section 3 referring to the appeals commission. He had left it with 
us when he went to New York, at the time we first agreed, to adapt 
the Hitchcock bill, containing a suitable provision as to the appeals 
commission, to the War Industries Board bill. We made that 
adaptation, but in our judgment—and when I say “ our ” I mean 
my committee’s judgment—there was no necessity for the provision 
that the Department of Justice should also have a right of appeal, 
and we left out the words “ Department of Justice,” which had been 
included at Judge Cohen’s request, and immediately wrote him to 
that effect and sent him a copy of it. 

We felt that it was not necessary or desirable, and for this reason: 
That, in the first place, it was a branch of the Government that was 
acting when the War Department acted. In the next place, the 
commission itself provided that it should be composed of two mem¬ 
bers of the Government, in effect; in other words, one represented 
the War Department, one represented the Department of Justice, 
and one general business. So the commission itself practically had 
the effect of giving the Department of Justice the right of appeal. 


VALIDATING INFORMAL CONTRACT'S. 


39 


two members being governmental officers satisfactory to the Senate, 
and one of them to the War Department and the other to the Depart¬ 
ment of Justice. 

Late at night Judge Cohen hunted me up and told me he had been 
arguing the matter with various members of the Senate committee; 
that he had seen that the Department of Justice would have the right 
of appeal under the bill as he proposed it, with section 3 added, and 
that he would be very much embarrassed and humiliated before the 
committee unless we consented to insert the words “War Depart¬ 
ment.” I considered, as far as I was concerned, as the only question 
the Government being protected in that respect and Judge Cohen 
being protected from embarrassment by reason of his previous state¬ 
ment. 

There was not time to confer with the War Department. When 
Judge Cohen was making his argument to you here the next day for 
this section 3, which I regard as a valuable and proper addition to 
the bill—the chairman will bear me out in saying that I asked that 
the War Department representatives be sent for, and in addition to 
that we caused a member of one of the committees of the War De¬ 
partment to be notified that the matter was on, because we wanted 
the benefit of the criticism of the War Department upon the situa¬ 
tion. In my representation I simply represented the public generally 
and what I conceived, or what my committee conceived, a just au¬ 
thority to represent the public interests, and I did not want any¬ 
thing "done that the War Department did not know about, or, at 
least, had the opportunity to be heard upon, and we would try to 
consider it just the same as you would consider it. 

Senator Kirby. Why should a man who has an invalid contract- 

Mr. Defrees. I am coming to that, Senator, if you please. 

Senator Kirby. Very well. 

Mr. Defrees. When you had agreed, and we could not get the War 
Department representatives here, we went down to the War Depart¬ 
ment for the purpose of calling their attention to what had been 
done for the purpose of urging that they join us in support of the 
matter, or if they could not, to tell us why. Mr. Dorr pointed out, 
I think with, accuracy, that the bill as drafted, if it left the Depart¬ 
ment of Justice with the right of appeal, would stop payment upon 
account for items which were settled. He said, of course, he could 
not be placed in the position of urging that there be no appeal from 
the War Department’s action, and he called our attention to this 
fact: That many of these informal contracts had many elements in 
them, and it would take a long time, or might take a considerable 
length of time, to reach an adjustment upon each of the elements 
involved in an informal contract so that it could be put into the 
formal contract and tendered, which would be the first time that the 
appeals provision as it was originally worded could operate; and 
that they, of course, could not make payment on account of items 
which were adjusted, and many of which could be adjusted readily, 
as long as this right of appeal existed. That impressed us as proper 
criticism of the bill as it was. . 

We do not know—we have not the slightest view ot all the in¬ 
tricacies that are involved in the War Department’s operation—that 
is the large view that they have. Mr. Thelen, a representative of 


40 


VALIDATING INFOKMAL CONTRACTS. 


the War Department, whom we also saw, suggested also that if the 
bill remained in this way it gave the informal contractors the right 
of appeal to this commission, which formal contracts would not 
have, and the formal contracts w T ould have to go to the Court of 
Claims. That occurred to us also as a matter which ought not to be. 

Senator McKellar. You will recall that in the Hitchcock bill 
they were all required to come before the commission. 

Mr. Defrees. Yes, sir. 

Senator McKellar. And that ought to be the case in this in¬ 
stance, 

Mr. Defrees. Now, that being so, we suggested to the gentlemen 
representing the department—Mr. Dorr and Mr. Thelen—that a 
remedy could readily be accomplished, first, by amending section 3 
so as to cover the two provisions; in other words, taking out tbe 
right of appeal of the Department of Justice, which was not in our 
judgment of consequence, because the commission itself, or the 
majority of it—two members of it were members of the Govern¬ 
ment, one representing the War Department and the other repre¬ 
senting the Department of Justice, and the original decision was 
the Government’s own decision. Next we felt that that would per¬ 
mit partial payments to continue, and then we suggested that we 
felt that the provisions in section 3 should be so broadened as that 
formal contracts also should be included in this same privilege. 

Senator Kirby. In other words, you think that if a man who has 
an informal contract is given the privilege of its being validated, 
and there is a special tribunal for the adjustment of it, that you are 
willing for the fellow who had the formal contract to also have 
that additional advantage in order to get both advantages to them¬ 
selves ? 

Mr. Defrees. No, sir. 

Senator Kirby. But does it not mean that? 

Senator McKellar. No; it puts them on an equality. 

Senator Kirby. Certainly it puts them on an equality, but you are 
proceeding here to extend a special favor to a man who has not a 
valid contract, and then you are providing special remedies for him 
that are better than those remedies provided for the man who has 
a valid contract, and to justify you in giving him a special advan¬ 
tage you say that you are willing to extend it to the man who 
already has a valid contract, too? 

Mr. Defrees. I would rather explain my own position, if you 
please. 

Senator Kirby. But is not that the effect of it? 

Mr. Defrees. I do not think so. 

Senator Kirby. I simply wanted to give you my view of this. 

Mr. Defrees. I hope your views will be modified, because they 
are not the proper deductions. Your statements of fact are entirely 
accurate, of course. We are not merely willing that these formal 
contracts shall be included in this right of appeal; we are anxious 
to have justice- 

Senator Kirby. Why are you anxious ? 

Mr. Defrees. Because this applies to both formal and informal 
contracts. One of the greatest things that will be accomplished by 
this bill, in addition to immediate payment, is the psychological 


VALIDATING INFORMAL CONTRACTS. 


41 


effect on contractors of the country and the bankers in whose hands 
they are. The entire country has understood from time immemorial 
that when you got to the Court of Claims it was your grandchildren 
who got the result and not yourself, and they would know that that 
would be the state of a if airs unless this type of relief were granted. 

Now, these contracts are in the millions, or at least there are hun¬ 
dreds of thousands of them rather, more than were given by the War 
Department in any previous time. The necessities of the situation 
were such that the patriotic contractors had to accept informal de¬ 
mands. They are entitled to just as much, and, in fact, more careful 
consideration than the man who formally signed his signature to a 
formal contract with which he expressed his satisfaction, because 
they have to trust to what the War Department would do for them 
afterwards. Now, they are all on a parity, and we would have in¬ 
serted this in the beginning if the matter had occurred to us. 

Senator Kirby. Why should you be on more than a par ? 

Mr. Defrees. We would not be on more than a par. 

Senator Kirby. Why should you change the other man’s position 
and make it better as against the Government and put him on a par 
with you when we are granting a special privilege? 

Mr. Defrees. Because justice needs to be done; because the country 
needs immediate relief. 

Senator Kirby. Certainly. 

Mr. Defrees. And it can not have it with an appeal to the Court of 
Claims. There was received from the clerk of the Court of Claims 
the other day an informal letter in which he stated that the Court of 
Claims was still functioning on claims growing out of the Civil War. 

Senator Kirby. They may not have settled them, but they are not 
wasting much time on them. 

Mr. Defrees. So we have submitted both of these amendments 
which we have suggested. 

Now, at the suggestion of Senator Chamberlain, to whom we came 
telling of these objections of the War Department, we felt that they 
ought to be made to the entire committee, and we came and asked 
that there be a hearing given in respect to these objections of the War 
Department, w T hich we were in sympathy with. The difference between 
the views expressed by Mr. Dorr and myself are not as to results to be 
accomplished, but as to the method of accomplishing them. We feel 
that the methods we propose are sufficient. The method of handing 
stone where bread is needed is pursued in the Court of Claims. 

Senator Kirby. It is the usual method, though. 

Mr. Defrees. But there never was such a situation as this before, 
and let us hope there never will be. Now, Senator Chamberlain said 
to Mr. Thelen and myself—Mr. Thelen representing the War Depart¬ 
ment—that we should get together and try to amend this section 3 
so that it would meet the objections of the War Department. That 
was at 12 o’clock on yesterday. Mr. Thelen and I made an appoint¬ 
ment at 2 o’clock yesterday and we were there all the afternoon until 
nearly 6 o’clock. Up to that time we had drafted our provisions and 
submitted them to them and the War Department, through Mr. 
Thelen, and Mr. Door advised us that they wanted to consider our 
amendments overnight. We asked them to tell us if they would not 
accomplish the result and if they knew of any fact which would not 


42 


VALIDATING INFORMAL CONTRACTS. 


be covered by this situation, and we asked for an appointment this 
morning at 9 o’clock, and we got there this morning and remained 
there until the time to come here to this committee. There was noth¬ 
ing further, you see, in respect to them. We assumed that they had 
stated their entire objection to these amendments in the statement 
which has just been made. They do not say, as I understand it, that 
it will not cover the situation to allow all contractors to be treated 
alike, and they do not say, so far as they have yet expressed them¬ 
selves, that it will interfere with the workings of the War Depart¬ 
ment. If by any chance it shall we, of course, are as anxious as any 
member of this committee can be that it should be stated, and we 
are anxious that it shall be remedied. 

The Chairman. Let me ask you this: You seem to have been steadily 
at work since 2 o’clock yesterday in undertaking to reach an agree¬ 
ment with respect to this matter. Do you think vou can reach an 
agreement with the War Department as to its substitute for this sec- 
ion 3, if you have more time? 

Mr. Defrees. I am sure we could not reach an agreement on any 
substitute except the one which sends it to the Court of Claims; do I 
quote you correctly, Mr. Thelen? 

STATEMENT OF MR. MAX THELEN. 

Mr. Thelen. On the subject of the desirability of having a tri¬ 
bunal to which these people can go for relief, I suggest that it be a 
tribunal to which all other contractors of all other departments of 
the Government can go, that is the Court of Claims; and we suggest, 
furthermore, that if the Court of Claims as now constituted can not 
handle these cases—although the War Industries Board has reported 
to us that they can—but if they can not, then we suggest that the 
proper thing to do is to enlarge the membership of the Court of Claims 
and remove every other obstacle so that they can do it. 

The Chairman. What is your particular objection to the form of 
appeal as covered by this bill, Mr. Thelen? 

Mr. Thelen. We have several objections. Thev have been stated 
in part by Mr. Dorr. One of them is that as the bill was originally 
presented here last Saturday it clearly was discriminatory in char¬ 
acter, because it gave to these informal contractors rights which those 
contractors who have legal claims do not have. 

The Chairman. But that could be avoided by slight amendments, 
could it not? 

Mr. Thelen. No; I beg your pardon, it has not been provided for 
in all the amendments that Mr. Defrees proposes, and for this rea¬ 
son. that he proposes, in order to get these people an appeal to this 
particular commission, that we also take in those who hold legal con¬ 
tracts of the War Department; but we still have a situation as to 
those who have contracts from the Navy Department, the Interior 
Deparment, and the Shipping Board, and from every other depart¬ 
ment— 

The Chairman (interposing). This committee does not have any¬ 
thing to do with that. 

Senator McKellar. No; not a thing in the world. 

Senator Kirby. That is only suggested to show that you are chang¬ 
ing the entire machinery for the adjustment of claims against the 
Government on account of contracts made with a governmental de- 



VALIDATING INFORMAL CONTRACTS. 43 

partment for the benefit of a few men who do not have valid con¬ 
tracts with the Government. 

Senator McKellar. We are doing the same thing as was done 
in 1898. 

Senator New. Now, Senator Kirby, your assumption there is, as 
I take it, that those men who have these informal contracts are seek¬ 
ing a rather unfair advantage. I think you put them in the attitude 
here that they ought not to be compelled to occupy. The fact that 
these contracts are invalid, they are not responsible for. They be¬ 
lieved them to be valid when they, accepted them, or if they- 

Senator Kirby (interposing). Conceding that- 

Senator New (continuing). But if there was any doubt whatever 
in their minds as to their entire validity, they assumed that all doubt 
would be settled justly and without delay on the part of the depart¬ 
ment. 

Senator Kirby. Conceding all that- 

Senator New (interposing). And they are the people who are here 
now, asking not for special relief but that some way be found to 
put themselves on a par exactly with the people who have valid con¬ 
tracts. 

Senator Kirbv. Now, that is just exactly what I am trying to get 
at; because they thought they had a valid contract and had a bona 
fide intention of making a valid contract, do you think they are 
entitled to more consideration in settlement than those people who 
did have valid contracts, and are they not asking for more considera¬ 
tion here and a different tribunal to adjust the matter in? 

Senator New. I think this, Senator Kirby, that their’s is the situa¬ 
tion that demands some sort of adjustment. The other does not. We 
are not trying to settle the case of a man here who has a valid con¬ 
tract that does not cal] for anything. It is this very unusual situa¬ 
tion that has arisen that calls for something that will enable these 
men whose contracts are invalid to be given prompt relief. 

Senator Kirby. Certainly, but do not give them any more chance 
than they'would have had if they had a valid contract. 

Mr. Thelen. You have asked me the reasons, and I have stated 
one of them. I should now like to state another, and that is that 
if this proposition is adopted in the form in which it was suggested 
last Saturday, these contractors will have five appeals, and I want 
to explain that situation. First you go to the local district boards, 
which have been established by the War Department. Those boards 
consist in part of the representatives of the Government and in part 
representatives of business men who sit on those boards. If the con¬ 
tractor is dissatisfied w T ith their award he can appeal to the central 
claims board of the particular department in Washington. That is 
the second board. If he is still dissatisfied with that award, he can 
then appeal to another board which has been constituted in the War 
Department and which consists of civilians, known as the Board of 
Contract Adjustments. I think it consists of civilians. 

It is true that those men have the rank of lieutenant colonel, but 
that is so that they can administer oaths; otherwise they would not 
have that power, but they were taken from civil life and by instinct 
and training are civilians. Tf a contractor is still dissatisfied with 


44 


VALIDATING INFORMAL CONTRACTS. 


that third tribunal, then under this bill he comes before this com¬ 
mission, and if he still is dissatisfied he then can go to the Court of 
Claims. So he has five bites at the cherry. 

Now, it seems to us that when the War Department has established 
carefully effective machinery, such as it has, consisting in part of 
business men and in part of civilians, and when in addition to that 
the contractor in this case is given the same right which other con¬ 
tractors have had from the foundation of the Government, he has 
the right to go to the Court of Claims, where full justice has been 
done to them. 

Now, Mr. Chairman, I just want to emphasize one further point 
that Mr. Dorr made, and that is this: The War Department has 
been consistent in its attitude toward this matter from the beginning. 
From the very beginning we have favored, and we now favor, the 
bill that is lying on the table in the Senate; that is, the War Indus¬ 
tries Board bill. If it is desired to give to the contractor this tribu¬ 
nal, we then suggest an amendment to section 1 of that bill providing 
that he can go to the Court of Claims, just where he would have 
gone if he had had a valid contract. 

The War Industries Board, we think, is entitled to considerable 
consideration. The War Industries Board represents the industries 
of the country. The War Industries Board works together so that 
those who represent the Government and those who represent the in¬ 
dustries might agree, and we do agree, and I understand that the 
War Industries Board feels about this bill just as we do. 

The Chairman. Let me call your attention to one matter. That 
bill which was reported out from this committee as a substitute for 
the so-called Hitchcock bill, was inadvertently reported; that is, it 
was not printed correctly. The bill that we are going to report out 
is the bill that we agreed upon on Saturday without section 3. 

Mr. Thelen. May I suggest, Senator, that as far as that goes the 
War Department is entirely satisfied with those rather minor changes 
that were made in the so-called War Industries Board bill. 

The Chairman. So that instead of the substitute bilk being the 
correct one, the bill that we intended to report out was the same as 
was agreed upon Saturday without section 3. 

Mr. Thelen. Without section 3 and just a slight change in sec¬ 
tion 4. 

The Chairman. Is there anything further to be said about this 
matter, because we will consider it in executive session. 

Mr. Dorr. May I say one word in conclusion? In talking this 
matter over with Mr. Crowell yesterday afternoon, after Mr. Defrees 
had suggested this to meet the objections which had been raised, this 
extension of the privilege to all contractors who hold valid contracts; 
that is, those who have contracts with the War Department, not 
those with contracts with other departments, Mr. Crowell said this: 
We had had a meeting during the afternoon with the chairmen of 
the various adjustment boards with a view to determining just how 
rapidly the process of adjustment was going, just what was being 
done, and he referred to that and said, 44 it appeared at that meeting 
this afternoon that we have already concluded negotiations with a 
vast number of contractors.” Now, this suggestion of Mr. Defrees 
puts the contractors who have not yet concluded their negotiations 


VALIDATING INFORMAL CONTRACTS. 


45 


upon an entirely different basis from those who have already con¬ 
cluded them. 

Mr. Defrees. How? 

Mr. Dorr. By giving them a resort to a tribunal which contractors 
who have already acted did not have. 

Senator Sutherland. They would still have that, would they not? 

Mr. DorR. I do not suppose they would. They have agreed on 
the terms of settlement. 

Senator McKellar. If they are satisfied why should anybody else 
be dissatisfied ? 

Senator Weeks. If they are satisfied with the terms of settlement 
there is nothing else to be said. 

Mr. Dorr. The only answer to that is that it seems to me that 
while it is true they have agreed to that, if they adopt the position 
of these other contractors they might have felt like taking the chance 
of seeing if they could not get something additional, in the first 
place, by going to this appeals board, on which there is, as the bill 
provides, a representative of the business interests; and, again, by 
going with TO per cent of that in their pockets to the Court of 
Claims. It undoubtedly puts them in a different position; that is, 
the bill as it stands now proposes to give these two additional 
appeals and the last appeal to the Court of Claims and puts the 
claimant in a position which no other claimant against the Govern¬ 
ment occupies; that is, it puts 75 per cent of his claim, or his award, 
in his pocket at the time he is prosecuting that claim, and therefore 
naturally it tends toward litigation. 

STATEMENT OF MR. N. W. APPLETON, NEW YORK. 

Mr. Appleton. Mr. Chairman, may I give you a message that 
Mr. Jules Henry Cohen gave me to deliver to this committee to-day? 

The Chairman. Yes. 

Mr. Appleton. He says that after reflection and after having a 
great deal of discussion since Saturday on this bill, he still believes 
that the agreement or conclusions that you gentlemen arrived at 
last Saturday are the correct ones. He does not object if the words 
“Department of Justice” are stricken from the third paragraph of 
this proposed bill, but he does believe that they ought to be there 
just the same, though he has no objection to their being stricken out. 
He still believes that there is no favoritism as to these so-called 
invalid contracts, because, as the bill stands, without paragraph 3, 
the provision of the commission, it leaves entirely within the power 
and discretion of the War Department the interpretation of the 
last three lines of the first paragraph, namely: 

Provided he [the Secretary of War] finds that such waiver is not incon¬ 
sistent with the public interest; ancVin this event the said agreement shall 
have the same validity and effect it would have had if such statutory require¬ 
ment had been complied with. 

Now, if there were not this provision for this appeals commission 
it would be very easy for a person who is suffering from the need of 
money to carry on his business to be compelled to take most any 
sort of settlement that was offered to him, because his only alterna¬ 
tive would be to go to the Court of Claims; and you gentlemen 


46 


VALIDATING INFORMAL CONTRACTS. 


must keep in mind, as I know you do, the fact that this is an extreme 
emergency. The Court of Claims was never created with any idea 
that they would have any but the number of cases that might pos¬ 
sibly need to go before them for adjustment, and that is the reason 
this commission is sought to be created now. I am sure that Mr. 
Cohen wanted me to say to you that undoubtedly other claims 
against the Government will arise which could be referred to this 
commission for adjustment and report back to Congress, so that you 
would be setting in motion the wheels now, the machinery that 
would carry out the whole proposition as it was ultimately pre¬ 
sented, and he feels, and expresses in that feeling the sentiment of 
the New York Chamber of Commerce, that the appeals commission 
is vitally necessary in this bill. 

STATEMENT OF MR. JOSEPH II. DEFREES—Resumed. 

The Chairman. Now, Judge Defrees, you may continue. 

Mr. Defrees. Mr. Chairman, I shall take up only a very few min¬ 
utes more of your time. 

No contractor would ever agree to a settlement or want to go to 
this appeals commission unless he had agreed under constraint— 
under the constraint of the fact that he has got to do what the War 
Department says, which would not be so under other circumstances. 
The same thing applies to Mr. Thelen’s suggestion about these suc¬ 
cessive appeals. They all of them going along to people who are 
under the supreme direction of somebody above them in the military 
service. It has that fault, and while we have no reason to state it as 
a positive fact—we do not want to say that we have heard that the 
department has been unfair, and we do not expect it to be unfair— 
still we do say that it is always a possibility, and we do say that the 
spirit of the country, the psychology of this whole situation, depends 
upon this appeals feature. 

The Chairman. I have not been satisfied with any explanation 
given me as yet for putting these men in uniform who are to serve 
as civilians on the adjustment board. Mr. Thelen says, and it is the 
first time I have heard that intimated, that they were made lieutenant 
colonels for the purpose of administering oaths. They could have 
been made notaries public for that purpose. 

Mr. Thelen. We did not look into that particular phase of it, but 
when the question came up of appointing the board of appraisers to 
appraise property taken over by the Government, the office of the 
Judge Advocate General gave very careful consideration to that 
question as to whether there should be civilian members in the Mili¬ 
tary Establishment. 

The Chairman. Our experience with men in uniform is that, 
although there is no intention to be unfair, there is a disposition upon 
the part of the minor officers not to talk about anything that occurs, 
as they are restrained by a superior. I should like to know why it 
was found necessary to put these men in uniform. 

Mr. Thelen. Frankly, the reason I gave you is the reason, because 
there is a provision in the statute to the effect that an officer of the 
Army has the right in any inquiry or investigation to administer 
oaths, and it was that provision which was relied upon when the 


VALIDATING INFORMAL CONTRACTS. 


47 


appraisers were appointed, and the same provision was relied upon 
w r hen this board was appointed, and that is the only reason why they 
were put in uniform. 

The Chairman. I have heard that those men who come from civil 
life have regretted very much that they were directed to put on uni¬ 
forms, because they could not talk. 

Mr. Thelen. Frankly, I should prefer to have them civilians. 

Senator McKellar. Is that not in direct opposition to the order of 
the War Department that no more commissions should be given dur¬ 
ing the armistice ? 

Mr. Thelen. No, sir; those were given before. In fact, this board 
was created several months before the armistice was signed. 

Senator McKellar. How long has it been since these men were 
commissioned ? 

Mr. Thelen. I think it was a month before the armistice was 
signed; I am not sure as to the date. 

Senator Sutherland. If they are employed to administer oaths, 
are they not under all other regulations provided for officers in uni¬ 
form, and under direction and control of the War Department 
officials—both military and civil? 

Mr. Thelen. I have not given any consideration to that. 

Senator Knox. I would like to ask you a question. I have been 
necessarily detained by the Committee on Privileges and Elections, 
and perhaps this has been already disposed of, but speaking now 
entirely from recollection, it is within the discretion, as I recall it, 
of the Secretary of War to waive these irregularities; he may, or he 
may not, waive them. If he thinks it is contrary to the public in¬ 
terest he will not waive them. Now, what appeal does a man have 
who has a contract where he would not waive the irregularities? 
He could not go to the Court of Claims, as it is only the judicial 
questions that can go to the Court of Claims. If he has no appeal, 
he has come to the end of his string. 

Mr. Dorr. The suggestion of the department as to that is that in 
that event he should be allowed to go to the Court of Claims, and 
the Court of Claims could be given jurisdiction to award him equit¬ 
able compensation for the service he has performed and the expendi¬ 
tures he has made. 

Senator Knox. Even as against the decision of the Secretary of 
War that it was contrary to the public interest to give him any 
status at all? 

Mr. Dorr. If he has actually rendered the service. The judgment 
of the Secretary would merely go to whether it was desirable to rein¬ 
state that particular contract, and that the contract may be so 
phrased that the contractor under it would accept the provisions that 
were made in one of the old forms of contracts, and the contractor 
may be willing to do what contractors universally are doing, namely, 
accepting a reduction of work—a reduction of unnecessary work. 

Senator Knox. Under this, you see, these people, by reason of not 
having a valid formal contract, can not go into any court, and under 
this statute they can not go into any court unless it is approved by 
the Secretary of War, and the court then provided for them is the 
commission in the War Department. If he refuses the award it seems 
to me he has no remedy at all. 


48 


VALIDATING INFORMAL CONTRACTS. 


Mr. Dorr. I think that is true as the bill stands, and I think it is 
true as to the bill as framed by Mr. Defrees, probably, but the sug¬ 
gestion that we would make would be conferring the right to go into 
the Court of Claims for equitable compensation. 

Senator Knox. The question in my mind is whether when a po¬ 
litical department of the Government has certified that it is con¬ 
trary to public interest to recognize a claim, whether as a judicial 
question the jurisdiction of it is given to the court. 

Mr. Dorr. I do not believe that question could be, but I think the 
court could be given equitable jurisdiction. That is what we are sug¬ 
gesting—to give equitable compensation for the service he has actu¬ 
ally rendered and the expenditures he has actually made at the 
instance of the Government; and in that respect the suggestion we 
make is, of course, very much more for the protection of the con¬ 
tractor or the holder of these informal contracts than the suggestion 
made by Mr. Defrees, because the bill as it now stands I do not think 
accomplishes that purpose, and I do not think it can accomplish it. 

Mr. Thelen. Mr. Chairman, in order that the record may be com¬ 
plete as to the language of this statute, it is section 183 of the Re¬ 
vised Statutes, and that is the statute on the foundation of which jur¬ 
isdiction is given the members of boards in the Contract Adjustment 
Division. 

Mr. Defrees. We have copies of this bill here with this amend¬ 
ment that I suggest for the members of the committee. 

The Chairman. I suggest that you furnish that to the clerk in such 
words as you desire, so that there will be no confusion afterwards. I 
have a copy of one that you prepared here the other day. 

Mr. Defrees. I mean a copy with these amendments in the bilk 
providing that it shall include in the appeals commission the right of 
the formal contract or legitimate contract as well as the informal 
contract. 

Senator McKellar. I want to say to Judge Defrees that I am not 
at all satisfied with regard to section 4, and I desire to have a confer¬ 
ence with him about it. 

The Chairman. I will say that the committee will take this matter 
up and give it full and thorough consideration. We will take up this 
contract matter in executive session. Representative Saunders, of 
the House, is here upon a matter of his own, and the committee will 
hear him. 


STATEMENT OF MR. EDWARD D. ROBBINS. 

The Chairman. Mr. Robbins, have you seen the last draft of the 
proposed bill we have discussed, for validating contracts ? 

Mr. Robbins. I have just been looking at it. 

The Chairman. Did you want to criticize it in any way or offer 
suggestions with reference to it? 

Mr. Robbins. I had intended to speak about the House bill. My 
criticism I intended to direct to that. 

Senator Brandegee. I wish you would direct your criticism to the 
House bill. I think we had better have in mind what your criticism 
of one feature of the House bill is, as it is very vital, in my opinion. 

Senator McKellar. Are you in favor of or against the House bill ? 


VALIDATING INFORMAL CONTRACTS. 49 

Mr. Robbins. I want to point out what is evidently a failure to 
carry out the real intent of Congress. I am not criticising it except 
in one respect that I consider very vital. I might make other criti¬ 
cisms. 

Senator McKellar. Go as far as you like. 

Mr. Robbins. However, I should prefer to confine myself to the 
one pointy The body of the bill provides for empowering the Secre¬ 
tary of TV ar to adjust, pay, or discharge these informal agreements. 
Then follow certain provisos. Of course, the positive clauses of the 
bill have no effect where limited by the provisos. 

The first proviso is the one that I wish to criticise. 

Senator McKellar. What is the number of that House bill ? 

Mr. Robbins. No. 13274. The proviso reads: 

That payment under such agreement shall not exceed the fair value of the 
property transferred or delivered and accepted by the United States, as de¬ 
termined by the Secretary of War, and where no property has been transferred, 
delivered, or accepted, payment shall not be in excess of the actual cost incurred 
in preparation for performance, as said cost is determined by said Secretary. 

Now, let me take a case, which is a common case, where an agree¬ 
ment is in part performed. Take the case as with us: The contract 
was, we will say, for 20,000 automatic rifles; 5,000 have been delivered 
and the other 15,000 are in course of manufacture. Now, where no 
property has been transferred, why, then, it is permitted to. indem¬ 
nify the contractor for the preparation for performance, which often 
has been under the immediate direction of the War Department, and 
very elaborate. But here is a case that does not come under that 
clause, because no property has been delivered and in that case, in 
accordance with the natural meaning of the words, no payment can 
be made exceeding the fair value of the property delivered; in other 
words, they could get pay for the 5,000 guns, but not 1 cent of pay 
for all the work they have done on the other 15,000. That is what 
those words mean. 

The Chairman. On the other hand, if none of the 20,000 guns had 
been delivered, you would have been compensated for all ? 

Mr. Robbins. Yes, sir; but if we had delivered a few, we can not 
get that. 

The Chairman. That evidently is not what is intended. 

Mr. Robbins. No; that evidently is not what is intended, and it is 
only that it seems to me that it is so exceedingly important that I 
asked for this hearing. 

The Chairman. You represent the Marlin Arms people? 

Mr. Robbins. Yes, sir; this does not affect us as much as others, 
because we have, generally written contract, but I think you gentle¬ 
men should know this, that there are a whole lot of little factories 
there that are nearly bankrupt, because they can not get money. 
They go to the banks and ask*4or accommodation, and the banks want 
to know if they are going to get paid by the Government, and they 
have to satisfy the banks in this respect, and unless this language in 
this bill is made clear, so that the banks will know that they are going 
to get their money, and the Government is going to be fair to these 
people, these little factories will be bankrupt. 

The Chairman. Suppose a firm had contracted for $100,000 worth 
of property and had made a very large expenditure in preparation 


100268—19-4 



50 VALIDATING INFORMAL CONTRACT'S. 

and had actually delivered $5,000 worth of that property; do you 
mean to claim, under the Dent bill, they could not receive any com¬ 
pensation under those circumstances for any cost of preparation ? 

Mr. Robbins. Yes, sir. 

The Chairman. But, on the other hand, they would be paid only 
for the $5,000 worth delivered, wliich might not compensate for the 
cost of preparation. 

Mr. Robbins. Yes, sir. 

Senator Brandegee. Do you care to read to the committee tjie pro¬ 
posed proviso which you have prepared as a substitute for the pro¬ 
viso at present in the House bill, and leave it with the committee ? 

Mr. Robbins. Yes, sir; but of course this is only a suggestion, and 
it can be amended in a great many ways. I read the debate in the 
House with great interest, and I thought the main trouble in the 
House was that they were afraid that somehow or other prospective 
profits would be paid. Nobody wants anything of that kind, and 
therefore I drew up a proviso, to make that clear, and yet'not have 
the outrageous result apparently accomplished by that bill. I will 
read it to the committee: 

Provided, That no adjustment of or payment under any such agreement shall 
include any allowance for property transferred or delivered to and accepted by 
the United States beyond a reasonable compensation therefor, as determined by 
the Secretary of War. 

May I stop there to say that this bill says it shall not receive any¬ 
thing more than a fair value. I would like to ask the committee 
what the value of a gas mask is to-day. “ Compensation ” is what 
you mean. 

Senator Thomas. We might use them in the Senate occasionally. 

The Chairman. I think they would talk through them. 

Mr. Robbins. You use the word “ compensation ” in your bill. 
That is the proper word, of course. Then I put on another provision, 
which is my suggestion to help remove some of the troubles in the 
minds, evidently, of the Members of the House: 

Nor any allowance whatever in case of the suspension, cancellation, or termi¬ 
nation of any such agreement, before its complete performance on the part of 
any other party thereto for any loss of prospective profits which might or 
would have accrued to such party from work not actually performed, or from 
the delivery of property not actually acquired by such party. 

That is volunteered as my suggestion. 

The Chairman. Have you looked over the bill which was sub¬ 
mitted to you a little while ago, which is now being discussed as a 
solution and substitute for the Dent bill? 

Mr. Robbins. Yes, sir. 

'The Chairman. How does it strike you? 

Mr. Robbins. Very much better than the House bill. 

Senator McKellar. Do you like the 75 per cent proposition in it? 

Mr. Robbins. Personally, I do not care very much about the ap¬ 
peal. Our case is very clear and we expect no trouble with the Sec¬ 
retary of War. • May I explain that most of the work done has been 
done* on procurement orders. This was the modus operandi. I 
will give one case as an illustration. The Marlin Arms Corporation 
was asked to produce, as quickly as they could, 20,000 machine guns. 
^Everybody was crying for them and they received a verbal order, 


VALIDATING INFORMAL CONTRACTS. 51 

with a complete agreement as to all the terms, in September, 1917. 
There was not anything left, you understand, to be discussed any 
further—all the terms were agreed on. Now, the next step under 
the rules of the War Department was to issue what is known as a 
procurement 1 order. That would constitute, in commercial life, a 
written contract, because it is a definite order accepted in writing by 
the contractor. That procurement order was delayed for some rea¬ 
son quite unknown to us, until March. 1918. 

Now, under the practice of the War Department, that procure¬ 
ment order is followed, and should be followed within a week by 
a contract, a form of which I have here. This is the form of con¬ 
tract [exhibiting]. 

That was submitted to us and we understood just what the con¬ 
tract was going to be and we were given to understand we would 
get.it within a week. It was a mere matter of some lawyer in the 
legal department making the procurement order and filling out the 
blanks in it and having it signed. That is all there was to it. That 
contract in this form, has not yet been signed, although the rifles 
have long since been made and paid for. 

Senator Beckham. You mean machine guns? 

Mr. Robbins. Yes, sir; automatic rifles—machine guns. 

Senator Beckham. Made and paid for? 

Mr. Robbins. Yes, sir. 

Senator McKellar. Without a contract? 

Mr. Robbins. Without a contract. 

Senator McKellar. You had nothing except the procurement 
order ? 

Mr. Robbins. Yes, sir; that is a typical case. 

The Chairman. There are many like that? 

Mr. Robbins. Oh, I think in the vast proportion of cases where 
there is trouble, under the ruling of the Solicitor of the Treasury, 
the cases are exactly that. 

Senator McKellar. There were procurement orders in all cases, 
do you think? 

Mr. Robbins. There are cases which are like the situation described 
in that contract, between September, 1917, and March, 1918. They 
came to us and said “You must not wait; you must go ahead; we 
must have the machine guns.” They agreed absolutely on all the 
terms. That, however, was by correspondence and part oral, but in 
the main in writing, and that procurement order should have come 
through immediately. 

The Chairman. I think you should have brought it to their atten¬ 
tion immediately. 

Mr. Robbins. If we had been disposed to insist on legal protection, 
of course, we would not have done anything, and you would not have 
had any machine guns. I„say absolutely if the contractors who fur¬ 
nished the machine guns, which you know were very much needed, 
had waited until the final contract in this form was executed, you 
would not have had any machine guns in France. 

The Chairman. We did not have enough anyway. 

Senator Thomas. I do not think there is any room for argument. 
The proposition is that these men came to the front, and, by God, 
they should be paid. 


52 


VALIDATING INFORMAL CONTRACTS, 


Mr. Robbins. We will not have the slightest difficulty in settling 
with the Secretary of War. Personally, I do not care about the ap¬ 
peal:. I wish we had some of the letters we received from those Army 
officers, thanking us for what we had done. 

The Chairman. You are with the Marlin Arms people? 

Mr. Robbins. Yes, sir.. may I make one other suggestion? 

The Chairman. Certainly. 

Mr. Robbins. I would suggest, where you have the words “ in good 
faith,” that you add immediately following the words “ done work.” 

The Chairman. That is in the bill we are now discussing ? 

Mr. Robbins. Yes, sir; and if I were drafting this bill, instead of 
saying “ and the' same has not Men reduced to contract form,” I 
would change that, because I consider a production order in contract 
form. That is a legal contract according to common law. 

The Chairman. I think the bill is broad enough to cover even a 
verbal contract. 

Mr. Robbins. Yes, sir; I think it is. I think the words “done 
work ” should be put in. 

Senator Brandegee. As I understand you, the Remington people 
are in the same situation? 

Mr. Robbins. The Remington people are in the same situation—I 
think they are in a much v r orse situation than we are, because, as I say, 
we have, in most cases, contracts under which we could, in a large 
measure, get out. It is not merely the Remington people with big 
contracts, but it is the thousands of little fellows who AA'ill suffer. 

I wish to thank your committee very much for its courtesy and 
kindness in hearing me. 

(Whereupon the committee Avent into executive session, after which 
the committee adjourned.) 


X 


Syracuse, N.V 
PAT. JAR. 21, m 










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